Company Quick10K Filing
Acquired Sales
Price7.65 EPS-0
Shares3 P/E-19
MCap21 P/FCF-43
Net Debt-4 EBIT-1
TEV17 TEV/EBIT-16
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-19
10-Q 2020-03-31 Filed 2020-05-20
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-15
S-1 2019-08-02 Public Filing
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-13
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-10-05
10-Q 2018-03-31 Filed 2018-10-03
10-K 2017-12-31 Filed 2018-09-26
10-Q 2017-09-30 Filed 2018-09-19
10-Q 2017-06-30 Filed 2018-09-19
10-Q 2017-03-31 Filed 2018-09-18
10-K 2016-12-31 Filed 2018-09-06
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-03-28
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-12
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-19
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-04-01
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-17
10-K 2012-12-31 Filed 2013-04-01
10-Q 2012-09-30 Filed 2012-11-13
10-Q 2012-06-30 Filed 2012-08-13
10-Q 2012-03-31 Filed 2012-05-21
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-31
10-K 2010-09-30 Filed 2010-12-20
10-Q 2010-06-30 Filed 2010-08-23
10-Q 2010-03-31 Filed 2010-05-18
10-Q 2009-12-31 Filed 2010-02-16
8-K 2020-09-09 Officers
8-K 2020-04-21
8-K 2020-02-24
8-K 2020-01-07
8-K 2019-11-14
8-K 2019-08-15
8-K 2019-07-29
8-K 2019-06-21
8-K 2019-05-23
8-K 2019-05-08
8-K 2019-04-30
8-K 2019-02-12
8-K 2018-11-18
8-K 2018-06-29

AQSP 10Q Quarterly Report

Part I - Financial Information
Item 1. Statements
Note 1 - Description of The Business of Acquired Sales Corp.
Note 2 - Post - Merger Information and Accounting Treatment of The Merger
Note 3 - Basis of Presentation and Significant Accounting Policies
Note 4 - Risks and Uncertainties
Note 5 - The Company's Investments in Ablis, Bendistillery and Bend Spirits
Note 6 - Property and Equipment, Net
Note 7 - Notes Receivable
Note 8 - Intangible Assets, Net
Note 9 - Related Party Transactions
Note 10 - Distributions To Nicholas S. Warrender
Note 11 - Shareholders' Equity
Note 12 - Contingent Contractual Obligations and Commercial Commitments
Note 13 - Legal Proceedings
Note 14 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 1. Statements
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 aqsp_ex31z1.htm
EX-31.2 aqsp_ex31z2.htm
EX-32.1 aqsp_ex32z1.htm
EX-32.2 aqsp_ex32z2.htm

Acquired Sales Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
10.07.34.62.0-0.7-3.42012201420172020
Assets, Equity
1.10.90.70.40.20.02012201220132014
Rev, G Profit, Net Income
3.72.51.30.1-1.1-2.32012201420172020
Ops, Inv, Fin

10-Q 1 aqsp_10q.htm 10-Q

FORM 10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 

 

For the quarterly period ended June 30, 2020

 

OR

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission file number 000-52102

 

ACQUIRED SALES CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

87-0479286

(State or other jurisdiction of incorporation or organization)      

(I.R.S. Employer Identification Number)

  

31 N. Suffolk Lane, Lake Forest, Illinois 60045

(Address of principal executive offices)

 

(847) 915-2446

(Registrant’s telephone number, including area code)

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12 of the Act:

 

 

Common Stock, $0.001 par value                            AQSP                          OTC Markets

Title of each class                                     Trading symbol(s)                   Name of exchange on which registered

 

 

Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]


1



 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

                       Large accelerated filer     □

Accelerated filer                   □

                       Non-accelerated filer       x           

Smaller reporting company x

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of August 13, 2020, there were 6,460,236 shares of the registrant’s common stock outstanding.

 

 

 

 


2



 

 

 

ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.

 

TABLE OF CONTENTS

 

 

PART I — FINANCIAL INFORMATION4 

ITEM 1. STATEMENTS4 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS37 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK42 

ITEM 4. CONTROLS AND PROCEDURES42 

PART II — OTHER INFORMATION42 

Item 1. Legal Proceedings.42 

Item 1A. Risk Factors.43 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.43 

Item 3. Defaults Upon Senior Securities.43 

Item 4. Mine Safety Disclosures.43 

Item 5. Other Information.43 

Item 6. Exhibits.43 

SIGNATURES45 

 

 


3



PART I — FINANCIAL INFORMATION

 

ITEM 1. STATEMENTS

 

IMPACTS OF COVID-19

 

LIKE NEARLY ALL BUSINESSES IN THE UNITED STATES TODAY, ACQUIRED SALES CORP. IS FACING AN UNPRECEDENTED AND HIGHLY RISKY BUSINESS ENVIRONMENT AND UNCERTAIN FUTURE CAUSED BY THE CORONAVIRUS KNOWN AS COVID-19.

 

THE IMPACTS OF COVID-19 ON ACQUIRED SALES CORP., ON ITS WHOLLY OWNED SUBSIDIARY LIFTED LIQUIDS, INC. D/B/A LIFTED MADE, AND ON LIFTED MADE'S OFFICERS, EMPLOYEES, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME COULD BE DISASTROUS FOR OUR COMPANY. AMONG THE MANY POTENTIALLY DISASTROUS IMPACTS OF COVID-19:

 

·THE U.S. ECONOMY MAY BE PUSHED INTO A DEEP RECESSION OR DEPRESSION THAT COULD MATERIALLY ADVERSELY IMPACT ACQUIRED SALES CORP. AND LIFTED MADE 

·ACQUIRED SALES CORP. AND LIFTED MADE COULD LOSE SOME OR ALL OF OUR KEY DIRECTORS, OFFICERS AND EMPLOYEES, WHO MAY BE IRREPLACEABLE 

·LIFTED MADE COULD BE UNABLE TO OBTAIN HIGH QUALITY RAW GOODS AND PACKAGING MATERIALS NEEDED TO MANUFACTURE ITS PRODUCTS, OR OBTAINING HIGH QUALITY RAW GOODS AND PACKAGING MATERIALS COULD BE MORE EXPENSIVE AND/OR DELAYED 

·LIFTED MADE COULD BE UNABLE TO DISTRIBUTE OR SELL ITS PRODUCTS PROFITABLY, IF AT ALL 

·U.S. CONSUMERS COULD BE SO FINANCIALLY DISTRESSED THAT THEY CANNOT OR WILL NOT PURCHASE LIFTED MADE'S PRODUCTS  

·U.S. FEDERAL, STATE AND LOCAL GOVERNMENTS MAY IMPOSE LAWS, RULES, REGULATIONS AND EXECUTIVE ORDERS THAT EFFECTIVELY PROHIBIT LIFTED MADE FROM OPERATING PROFITABLY, IF AT ALL, OR THAT EFFECTIVELY LIMIT LIFTED’S EMPLOYEES FROM PERFORMING THEIR WORK FOR LIFTED IN A NORMAL AND COST-EFFECTIVE MANNER 

·THE U.S. FINANCIAL SYSTEM AND ECONOMY MAY NOT BE ABLE TO CONTINUE TO FUNCTION AS THEY HAVE HISTORICALLY, WHICH MAY HAVE MATERIAL ADVERSE IMPACTS UPON ACQUIRED SALES CORP. AND LIFTED MADE THAT CANNOT PRESENTLY BE ESTIMATED OR PREDICTED  

·LIFTED MADE COULD EXPERIENCE SEVERE FINANCIAL LOSSES NOT COVERED BY ANY INSURANCE  

 

NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN THAT ACQUIRED SALES CORP. AND LIFTED MADE WOULD BE ABLE TO AVOID THESE POTENTIALLY DISASTROUS IMPACTS OF COVID-19.

 

CONSEQUENTLY, ACQUIRED SALES CORP. AND LIFTED MADE COULD RUN OUT OF MONEY AND COULD BECOME INSOLVENT OR BANKRUPT AS A RESULT OF THE IMPACTS OF COVID-19, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR COMPANY AND ON THE PRICE OF OUR COMMON STOCK.

 

THE IMPACTS OF COVID-19 ARE ALREADY BEING EXPERIENCED BY ACQUIRED SALES CORP. AND LIFTED MADE. ON MARCH 20, 2020, ILLINOIS GOVERNOR J.B. PRITZKER ISSUED EXECUTIVE ORDER 2020-10, ENTITLED "EXECUTIVE ORDER IN RESPONSE TO COVID-19 (COVID-19 EXECUTIVE ORDER NO. 8)", PURSUANT TO WHICH, WITH CERTAIN EXCEPTIONS, ALL INDIVIDUALS CURRENTLY LIVING WITHIN THE STATE OF ILLINOIS WERE ORDERED TO STAY AT HOME OR AT THEIR PLACE OF RESIDENCE, EXCEPT AS ALLOWED IN THE EXECUTIVE ORDER. THE GOVERNOR IS CONTINUING TO ISSUE AMENDED EXECUTIVE ORDERS WHICH PROFOUNDLY AFFECT THE CONDUCT OF BUSINESS WITHIN THE STATE OF ILLINOIS.

 

NO ASSURANCE OR GUARANTEE WHATSOEVER CAN BE GIVEN AS TO HOW SUCH EXECUTIVE ORDER, AND SUBSEQUENT AMENDED EXECUTIVE ORDERS, WILL IMPACT ACQUIRED SALES CORP., LIFTED MADE, LIFTED MADE'S OFFICERS, EMPLOYEES, RAW GOODS AND PACKAGING SUPPLIERS, DISTRIBUTION CHANNELS, CUSTOMERS, SALES AND NET INCOME, OR THE PRICE OF OUR COMMON STOCK.

 

DURING THE ONGOING COVID-19 PANDEMIC, THE SOLVENCY AND CASH FLOW OF OUR LIFTED MADE SUBSIDIARY AND ACQUIRED SALES HAVE BEEN SIGNIFICANTLY DEPENDENT UPON THE RE-SALE OF HAND SANITIZER TO A SMALL NUMBER OF CUSTOMERS, AND UPON THE RECEIPT BY LIFTED MADE OF $149,622.50 BORROWED FROM THE U.S. SMALL BUSINESS ADMINISTRIATION (“SBA”) UNDER THE SBA’S PAYROLL PROTECTION PROGRAM (THE “PPP LOAN”) AND UPON THE RECEIPT BY LIFTED MADE OF


4



$10,000 GRANTED TO IT BY THE SBA UNDER THE SBA’S ECONOMIC INJURY DISASTER LOAN PROGRAM. SUCH RE-SALES OF HAND SANITIZER MAY NOT CONTINUE IN THE FUTURE, AND THE PPP LOAN MAY BE REQUIRED TO BE REPAID. CONSEQUENTLY, LIFTED’S AND ACQUIRED SALES’ FUTURE FINANCIAL PROSPECTS ARE UNCERTAIN, AND NO GUARANTEE OR ASSURANCE WHATSOEVER CAN BE MADE THAT LIFTED AND ACQUIRED SALES WILL BE ABLE TO CONTINUE TO PAY THEIR FINANCIAL OBLIGATIONS WHEN THEY BECOME DUE AND PAYABLE IN THE FUTURE.

 

PLEASE ALSO CONSIDER "RISK FACTORS RELATING TO LIFTED AND FUTURE ACQUISITIONS - Pandemics or disease outbreaks, such as the novel coronavirus, may disrupt consumption and trade patterns, supply chains, and production processes, which could materially affect Lifted’s and target companies’ operations and results of operations", in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2020 for the period ended December 31, 2019.

 

Financial Statements

 

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.

 

The results for the period ended June 30, 2020 are not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2020 for the period ended December 31, 2019.

 

 

 

 

ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Page

Condensed Consolidated Balance Sheets, June 30, 2020 (Unaudited) and December 31, 2019

5

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)

6

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2019 and 2020 (Unaudited)

7

Condensed Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)

8

Notes to the Condensed Consolidated Financial Statements (Unaudited)

9-16


5



ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2020

 

2019

ASSETS

 

 

 

 

Current Assets

 

 

 

 

Cash and Cash Equivalents

 

$ 510,803   

 

$ 4,384,929   

Prepaid Expenses

 

2,083   

 

9,583   

Interest Receivable

 

838   

 

-   

Note Receivable from CBD LION

 

122,546   

 

200,000   

Accounts Receivable, net of $13,214 allowance in 2020

 

394,697   

 

-   

Inventory

 

500,037   

 

-   

Total Current Assets

 

1,531,004   

 

4,594,512   

Goodwill

 

22,292,767   

 

-   

Investment in Ablis

 

399,200   

 

399,200   

Investment in Bendistillery and Bend Spirits

 

1,497,000   

 

1,497,000   

Fixed Assets, less accumulated depreciation of $4,858 in 2020

 

106,581   

 

-   

Intangible Assets, less accumulated amortization of $556 in 2020

 

3,888   

 

-   

Security Deposit

 

1,600   

 

-   

Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $26,368 in 2020

 

16,988   

 

-   

Total Assets

 

$ 25,849,028   

 

$ 6,490,712   

LIABILITIES AND SHAREHOLDERS'  EQUITY

 

 

 

 

Current Liabilities

 

 

 

 

Operating Lease Liability

 

16,911   

 

-   

Deferred Revenue

 

79,380   

 

-   

Management Bonuses Payable - Related Party

 

 

 

 

    Management Bonus Payable - Related Party - Payable to William C. Jacobs

 

100,000   

 

-   

    Management Bonus Payable - Related Party - Payable to Gerard M. Jacobs

 

250,000   

 

-   

Management Bonuses Payable - Related Party

 

350,000   

 

-   

Accounts Payable and Accrued Expenses

 

302,927   

 

38,485   

Interest Payable - Related Party

 

 

 

 

    Interest - Payable to Nicholas S. Warrender

 

26,301   

 

-   

Interest Payable - Related Party

 

26,301   

 

-   

Preferred Stock Dividends Payable

 

 

 

 

    Series A Convertible Preferred Stock Dividends Payable

 

45,521   

 

145,017   

    Series B Convertible Preferred Stock Dividends Payable

 

13,221   

 

5,741   

Preferred Stock Dividends Payable

 

58,742   

 

150,758   

Total Current Liabilities

 

$ 834,261   

 

$ 189,243   

Non-Current Liabilities

 

 

 

 

Paycheck Protection Program Loan

 

149,623   

 

-   

Notes Payable - Related Party

 

 

 

 

     Notes Payable - Payable to Nicholas S. Warrender

 

$ 3,750,000   

 

$ -   

Total Non-Current Liabilities

 

$ 3,899,623   

 

$ -   

Total Liabilities

 

$ 4,733,884   

 

$ 189,243   

Commitments and Contingencies

 

-   

 

-   

Shareholders' Equity

 

 

 

 

Preferred Stock, $0.001 par value; 10,000,000 total shares authorized;
out of which 400,000 shares of Series A Convertible Preferred Stock are authorized, and 66,150 shares of Series A Convertible Preferred Stock shares were issued and outstanding at June 30, 2020, and 0 shares of Series A Convertible Preferred Stock were issued or outstanding at December 31, 2019; and out of which 5,000,000 shares of Series B Convertible Preferred Stock are authorized, and 100,000 shares of Series B Convertible Preferred Stock shares were issued and outstanding at June 30, 2020, and 0 shares of Series B Convertible Preferred Stock were issued or outstanding at December 31, 2019

 

166   

 

166   

 

 

 

 

 

Common Stock, $0.001 par value; 100,000,000 shares authorized; 6,460,236 shares issued and outstanding and 645,000 deferred contingent stock committed to be issued, subject to conditions, as part of the Lifted Made merger, outstanding at June 30, 2020, and 2,726,669 shares outstanding at December 31, 2019

 

6,460   

 

2,727   

 

 

 

 

 

Additional Paid-in Capital

 

38,787,444   

 

21,691,128   

 

 

 

 

 

Accumulated Deficit

 

(17,678,926)  

 

(15,392,552)  

Total Shareholders' Equity (Deficit)

 

21,115,144   

 

6,301,469   

Total Liabilities and Shareholders' Equity

 

$ 25,849,028   

 

$ 6,490,712   

Please see the accompanying notes to the condensed consolidated financial statements for more information.


6



ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Net Sales

$ 1,267,942   

 

$ 0   

 

$ 1,638,367   

 

$ 0   

Cost of Goods Sold

1,018,047   

 

0   

 

1,216,157   

 

0   

Gross Profit

249,895   

 

0   

 

422,210   

 

0   

Stock Compensation Expense

0   

 

834,186   

 

1,393,648   

 

834,186   

Selling, General and Administrative Expenses

42,664   

 

44,285   

 

63,522   

 

32,337   

Management Bonuses

0   

 

0   

 

350,000   

 

0   

Bad Debt

24,904   

 

0   

 

27,637   

 

0   

Payroll, Consulting and Independent Contractor Expenses

239,749   

 

0   

 

322,966   

 

37,500   

Professional Fees

176,890   

 

23,503   

 

243,444   

 

44,971   

Advertising and Marketing

53,922   

 

464   

 

66,048   

 

1,384   

Depreciation and Amortization

4,171   

 

0   

 

6,048   

 

0   

Warehouse and Lab Expense

56,625   

 

0   

 

56,625   

 

0   

Loss From Operations

(349,030)  

 

(902,438)  

 

(2,107,728)  

 

(950,378)  

Other Income/(Expenses)

 

 

 

 

 

 

 

Gain on Settlement

0   

 

0   

 

0   

 

29,196   

Interest Expense

(19,019)  

 

0   

 

(26,623)  

 

(27,998)  

Warehouse Buildout Credits

400   

 

0   

 

400   

 

0   

Gain on Forgiveness of Debt

10,000   

 

0   

 

10,000   

 

0   

Refund of Merchant Account Fees

34,429   

 

0   

 

34,429   

 

0   

Settlement Costs

(97,000)  

 

0   

 

(97,000)  

 

0   

Interest Income

907   

 

5,623   

 

6,583   

 

7,925   

Net Loss

$ (419,313)  

 

$ (896,815)  

 

$ (2,179,939)  

 

$ (941,255)  

 

 

 

 

 

 

 

 

Basic and Diluted Net Loss Per Common Share

$ (0.06)  

 

$ (0.35)  

 

$ (0.40)  

 

$ (0.38)  

 

 

 

 

 

 

 

 

Basic and Diluted Weighted Average Number of Common Shares Outstanding:

6,462,070   

 

2,579,648   

 

5,387,319   

 

2,492,713   

 

Please see the accompanying notes to the condensed consolidated financial statements for more information.


7



 ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Total

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Accumulated

 

Shareholders'

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

Balance, December 31, 2018

-   

 

$ -   

 

2,369,648   

 

$ 2,370   

 

$ 13,664,697   

 

$ (14,005,689)  

 

$ (338,622)  

Exercise of rights to purchase warrants to purchase shares of common stock

 

 

 

 

210,000   

 

$ 210   

 

$ 1,892   

 

 

 

$ 2,102   

Issuance of warrants to purchase common stock

 

 

 

 

 

 

 

 

$ 26,773   

 

 

 

$ 26,773   

Issuance of Series A Convertible Preferred Stock for cash

29,900   

 

$ 30   

 

 

 

 

 

$ 2,989,970   

 

 

 

$ 2,990,000   

Series A Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

$ (18,552)  

 

$ (18,552)  

Net Loss

 

 

 

 

-   

 

-   

 

 

 

$ (44,440)  

 

$ (44,440)  

Balance, March 31, 2019

29,900   

 

$ 30   

 

2,579,648   

 

$ 2,580   

 

$ 16,683,332   

 

$ (14,068,681)  

 

$ 2,617,261   

Issuance of Series A Convertible Preferred Stock for cash

36,250   

 

$ 36   

 

 

 

 

 

$ 3,624,964   

 

 

 

$ 3,625,000   

Stock Compensation Expense

 

 

 

 

 

 

 

 

$ 834,186   

 

 

 

$ 834,186   

Series A Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

$ (26,425)  

 

$ (26,425)  

Net Loss

 

 

 

 

 

 

 

 

 

 

$ (896,815)  

 

$ (896,815)  

Balance, June 30, 2019

66,150   

 

$ 66   

 

2,579,648   

 

$ 2,580   

 

$ 21,142,482   

 

$ (14,991,921)  

 

$ 6,153,207   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

166,500   

 

$ 166   

 

2,726,669   

 

$ 2,727   

 

$ 21,691,128   

 

$ (15,392,552)  

 

$ 6,301,469   

Issuance of warrants to Gerard M. Jacobs upon execution of employment agreement

 

 

 

 

 

 

 

 

$ 733,499   

 

 

 

$ 733,499   

Issuance of warrants to William C. Jacobs upon execution of employment agreement

 

 

 

 

 

 

 

 

$ 660,149   

 

 

 

$ 660,149   

Issuance of common stock consideration as part of the acquisition of Lifted Liquids, Inc.

 

 

 

 

3,900,455   

 

$ 3,900   

 

$ 10,722,351   

 

 

 

$ 10,726,251   

Issuance of warrants to purchase shares of common stock as part of the acquisition of Lifted Liquids, Inc.

 

 

 

 

 

 

 

 

$ 4,980,150   

 

 

 

$ 4,980,150   

Series A Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

$ (34,179)  

 

$ (34,179)  

Series B Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

$ (3,740)  

 

$ (3,740)  

Net Loss

 

 

 

 

-   

 

-   

 

 

 

$ (1,760,627)  

 

$ (1,760,627)  

Balance, March 31, 2020

166,500   

 

$ 166   

 

6,627,124   

 

$ 6,627   

 

$ 38,787,277   

 

$ (17,191,098)  

 

$ 21,602,972   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

$ (64,775)  

 

$ (64,775)  

Series B Preferred Stock dividend payable

 

 

 

 

 

 

 

 

 

 

$ (3,740)  

 

$ (3,740)  

Cancellation of shares of common stock

 

 

 

 

(166,888)  

 

$ (167)  

 

$ 167   

 

 

 

$ -   

Net Loss

 

 

 

 

 

 

 

 

 

 

$ (419,313)  

 

$ (419,313)  

Balance, June 30, 2020

166,500   

 

$ 166   

 

6,460,236   

 

$ 6,460   

 

$ 38,787,444   

 

$ (17,678,926)  

 

$ 21,115,144   

 

Please see the accompanying notes to the condensed consolidated financial statements for more information.

 


8



 

ACQUIRED SALES CORP. AND SUBSIDIARY LIFTED LIQUIDS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

For the Six Months Ended

 

 

June 30,

 

 

2020

 

2019

Cash Flows From Operating Activities

 

 

 

 

Net Loss

 

$ (2,179,939)  

 

$ (941,255)  

Adjustments to Reconcile Loss to Net Cash Used in Operating Activities:

 

 

 

 

    Stock Compensation Expense

 

1,393,648   

 

834,186   

    Bad Debt Expense

 

27,637   

 

-   

    Depreciation and Amortization

 

6,048   

 

-   

    Financing Cost - Issuance of Warrants to Purchase Common Stock

 

-   

 

26,773   

Effect on Cash of Changes in Operating Assets and Liabilities

 

 

 

 

    Accounts Receivable

 

(80,947)  

 

-   

    Prepaid Expenses

 

7,500   

 

(2,083)  

    Interest Receivable

 

(838)  

 

-   

    Inventory

 

(232,563)  

 

-   

    Loan to Shareholder

 

9,000   

 

-   

    Accounts Payable and Accrued Expenses

 

295,655   

 

(264,104)  

    Change in ROU Asset

 

9,031   

 

-   

    Change in Lease Liability

 

(8,990)  

 

-   

    Deferred Revenue

 

14,684   

 

-   

Net Cash Used in Operating Activities

 

(740,074)  

 

(346,483)  

Cash Flows From Investing Activities

 

 

 

 

Net Cash Paid as Part of Lifted Liquids, Inc. Acquisition

 

(3,130,610)  

 

-   

Reduction of CBD Lion Note Receivable

 

77,455   

 

-   

Net Purchase of Fixed Assets

 

(32,070)  

 

-   

Investment in Ablis

 

-   

 

(399,200)  

Investment in Bendistillery and Bend Spirits

 

-   

 

(1,497,000)  

Net Cash Used in Investing Activities

 

(3,085,225)  

 

(1,896,200)  

Cash Flows From Financing Activities

 

 

 

 

Proceeds from Paycheck Protection Program Loan

 

149,623   

 

-   

Payments of Dividends to Series A Convertible Preferred Stock Holders

 

(198,450)  

 

-   

Financing Cost - Proceeds From Borrowings Under Notes Payable to Related Parties

 

-   

 

14,772   

Financing Cost - Repayment of Borrowings Under Notes Payable to Related Parties

 

-   

 

(45,562)  

Financing Cost - Repayment of Interest Payable to Related Parties

 

-   

 

(2,606)  

Exercise of Rights to Purchase Warrants to Purchase Shares of Common Stock

 

-   

 

2,102   

Issuance of Series A Convertible Preferred Stock

 

-   

 

6,615,000   

Net Cash Provided by/(Used in) Financing Activities

 

(48,827)  

 

6,583,706   

Net Increase/(Decrease) in Cash

 

(3,874,126)  

 

4,341,023   

Cash and Cash Equivalents at Beginning of Period

 

4,384,929   

 

-   

Cash and Cash Equivalents at End of Period

 

$ 510,803   

 

$ 4,341,023   

 

 

 

 

 

 

 

For the Six Months Ended

 

 

June 30,

 

 

2020

 

2019

Supplemental Cash Flow Information

 

 

 

 

Cash Paid For Interest

 

$ 322   

 

$ 2,606   

Cash Paid For Income Taxes

 

$ -   

 

$ -   

 

 

 

Please see the accompanying notes to the condensed consolidated financial statements for more information.


9



Acquired Sales Corp.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE 1 – DESCRIPTION OF THE BUSINESS OF ACQUIRED SALES CORP.

 

Acquired Sales Corp. (hereinafter sometimes referred to as “Acquired Sales”, the “Company”, “AQSP”, “Acquired”, the “Company”, “we”, “us”, “our”, etc.) was organized under the laws of the State of Nevada on January 2, 1986.

 

Our business is primarily engaged in the identification, structuring and seeking to execute on acquisitions of all or a portion of one or more operating businesses involving the manufacture, sale and distribution of cannabinoid-infused products such as beverages, water, other liquids, water soluble nano drops or liquids, lotions, sprays, conditioners, creams, oils, pre-rolled hemp joints and hemp cigarettes, cartridges, syringes, tinctures, powder, water packets, effervescent tablets, capsules, bath bombs, balms, body washes, gummies, food, other edibles, and non-prescription cannabinoid formulations (a “Canna-Infused Products Company”). Our business also involves selling and distributing hand sanitizer, and potentially other personal protective equipment, during the pendency of the COVID-19 pandemic, and possibly longer.

 

In order to consummate a particular acquisition of a Canna-Infused Products Company, management of the Company is open-minded to the concept of also acquiring all or a portion of one or more operating businesses and/or assets that are related to such Canna-Infused Products Company, for example operating businesses and/or assets involving pumps, distilled spirits, beer, wine, paraphernalia and real estate. In addition, management of the Company is open-minded to the concept of acquiring all or a portion of one or more operating businesses and/or assets that are considered to be “essential” businesses which are unlikely to be shut down by the government during pandemics such as COVID-19.

 

To date, we have acquired 100% of the ownership interests in one Canna-Infused Products Company now called Lifted Liquids, Inc. d/b/a Lifted Made (formerly Warrender Enterprise Inc. d/b/a Lifted Liquids), 4.99% of the ownership interests in a second Canna-Infused Products Company called Ablis Holding Company ("Ablis"), and 4.99% of the ownership interests in two other businesses that manufacture distilled spirits called Bendistillery Inc. ("Bendistillery") and Bend Spirits, Inc. ("Bend Spirits").

 

We have also terminated a planned acquisition of Canna-Infused Products Company called CBD Lion LLC.

 

At this point in time, we are in discussions with companies in our acquisition pipeline that are involved in cannabinoid businesses and related businesses of various types. However, our cash on hand is currently limited, so in order to close future acquisitions it is highly likely that it will be necessary for us to raise additional capital, and no guarantee or assurance can be made that such capital can be raised on acceptable terms, if at all.

 

Acquisition of 100% of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids)

 

On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of the Company that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Warrants").

 

Pursuant to the Merger, Lifted Liquids, Inc. d/b/a Lifted Made, an Illinois corporation ("Lifted" or "Lifted Made"), is now operating as a wholly-owned subsidiary of the Company, led by Nicholas S. Warrender as Lifted's CEO and also as Vice Chairman and Chief Operating Officer of Acquired Sales.

 

Nicholas S. Warrender shall, subject to certain conditions, enjoy so-called “piggyback registration rights” and "demand registration rights" in regard to the Stock Consideration, pursuant to a Registration Rights Agreement.

 

Ownership of 4.99% of Ablis, Bendistillery and Bend Spirits

 

On April 30, 2019, we closed on the acquisition of 4.99% of the common stock of each of CBD-infused beverages maker Ablis, and of distilled spirits manufacturers Bendistillery and Bend Spirits, all of Bend, Oregon.

 

The Lifted Made Business

 


10



Prior to acquiring 100% of Lifted on February 24, 2020, we did not own 100% of any other operating company, so the Lifted Merger was highly significant to our Company.

 

History

 

Lifted was originally incorporated in the state of Wisconsin on September 19, 2014. Lifted was created with a passion to build a culture-based organization focused upon quality products and a healthier lifestyle. Lifted produces its own lines of products made with hemp, hemp flower, hemp-derived cannabinoid-infused products, as well as numerous hemp-derived cannabinoid-infused products for private label clients. In addition, Lifted has a raw goods supply chain that many customers benefit from: hemp-derived delta-8-THC distillate, CBD and CBG isolate, hemp flower, full spectrum CBD, broad spectrum water soluble CBD, CBD distillate and more. Lifted also sells and distributes gel and liquid hand sanitizer in various size bottles.

 

Officers and Employees

 

The executives of Lifted have backgrounds in the vaping industry, graphic design, marketing, and supply chain management, skills that have helped Lifted distinguish itself from the competition. The Lifted team occasionally attends trade shows throughout the USA to promote Lifted’s products and brand, and in support of Lifted’s private label clients. Lifted sometimes evaluates new products by introducing them to potential customers at certain vape shops in Wisconsin and Illinois which are partly owned by Warrender. The Company holds an option to purchase Warrender's interests in such vape shops for a nominal price.

 

Lifted currently has 23 full time and part time employees and independent contractors who are engaged in product formulation, design and branding, website development, private label client management, sales, distribution, supply chain management, new business development, warehouse management and order fulfillment, operations management, accounting, new product development, trade shows and evaluation of potential acquisitions and joint ventures. One of Lifted’s independent contractors is based in south Florida, one independent contractor is based in Colorado, one independent contractor is based in California, and the rest of the Lifted team is based in Zion, Illinois, Lake Forest, Illinois, and New Smyrna Beach, Florida.  

 

Description of Property

 

Lifted does not own any physical properties. Lifted’s corporate office, manufacturing facility and warehouse is located in Zion, Illinois, where Lifted has rented 3,300 square feet of space under a lease that terminates in June 2021. Lifted is currently temporarily using additional space located adjacent to its rented space and is making payments in lieu of rent therefor.

 

Sources of Supply

 

Lifted sources raw goods such as hemp-derived cannabinoids and flower from independent suppliers. Lifted’s hemp and hemp-derived raw materials are third-party lab tested. Lifted also sources gel and liquid sanitizer from various third parties.

 

Lifted acquires its disposable vape pens and cartridges from third party manufacturers and, in its clean room, adds Lifted’s proprietary vape solutions into the disposable vape pens and vape cartridges.

 

Lifted also acquires a variety of bottles, boxes, packaging and other items from third party manufacturers.

 

Lifted currently believes that it would be able to find replacement manufacturers with minimal negative impact on its business. However, Lifted's vape pens and cartridges are sourced exclusively from China, and much of Lifted's boxes, packaging and other items are sourced from China. COVID-19 and tariffs imposed on products sourced from China could make it difficult or impossible to source these products cost effectively, or at all, from China. COVID-19 and/or tariffs could make it difficult or impossible for Lifted to manufacture needed quantities of its products, if at all, and could drastically increase Lifted's product costs, all of which could have a serious detrimental impact on Lifted’s sales and profit margins.

 

Products

 

Lifted’s focus is manufacturing, sales and distribution of effective, quality products formulated in a clean room. Lifted also re-bottles and re-sells gel and liquid hand sanitizer. Lifted sources hemp-derived cannabinoids and other ingredients from many different suppliers. The ingredients are then incorporated into proprietary formulations in house.

 

Lifted produces its own lines of hemp-derived cannabinoid-infused products, as well as numerous hemp-derived cannabinoid-infused products for private label clients. Lifted’s current list of products include: hemp-derived delta-8-THC nano drops, nano CBD water enhancer packets, lotions, sexual lubricant, tinctures, bath bombs, oral sprays, gummies, hemp cigarettes and hemp joints, vape e-liquids, vape pens, e-cigarettes, food and other edibles and non-prescription cannabinoid formulations.

 

A third party manufacture makes lotion for Lifted in accordance with Lifted's specifications. Lifted also produces its edible cannabinoid-infused gummy products, bath bombs and e-cigarettes through third party manufacturers.


11



Lastly, Lifted sells and distributes gel and liquid hand sanitizer in various size bottles.

 

Product Risks

 

Some of Lifted's inhalable products currently contain nicotine. However, according to the U.S. Surgeon General, besides nicotine, inhalable products in some cases can contain harmful and potentially harmful ingredients, including, ultrafine particles that can be inhaled deep into the lungs, flavorants such as diacetyl, a chemical linked to serious lung disease, volatile organic compounds, and heavy metals, such as nickel, tin, and lead. There is a risk that Lifted could be targeted by regulators or consumers with claims that its products are unsafe.

 

The market for cannabinoid-infused vapes and cartridges is currently subjected to prohibitions of certain products in certain jurisdictions in response to deaths and illnesses that have occurred and that are apparently associated with vaping. In addition, certain jurisdictions have prohibited the sale of smokable hemp products and products containing flavored e-liquids. These various prohibitions and regulations may have a material adverse effect on Lifted's financial condition, operating results, liquidity, cash flow and operational performance.

 

Intellectual Property

 

Lifted maintains proprietary formulations and other trade secrets. However, Lifted owns no registered patents and has no patent applications pending.

 

R&D expenditures

 

Lifted's research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products. Lifted spent less than $10,000 on research and development efforts over the past two years. Research and development costs are expensed as they are incurred.

 

Marketing

 

Lifted markets itself by networking throughout the industry, through word of mouth, its websites, and by attending trade shows. During 2020, Lifted has also begun public relations and search engine optimization efforts. There can be no guarantee or assurance that these efforts will be successful or result in any additional sales or profits for Lifted.

 

Distribution

 

Lifted’s distribution is done internally and through third party distributors who distribute throughout the U.S. Lifted and these distributors distribute Lifted’s products to vape and smoke shops, physical therapy clinics, convenience stores, grocery stores, natural food stores, and other locations. Lifted believes but cannot guarantee that in the event that it lost its relationship with one or more of its current distributors that other replacement distributors could be found without significant disruption to Lifted’s business. However, the COVID-19 pandemic has seriously disrupted Lifted’s distribution channels.

 

Online Sales

 

Lifted sells its own line of products and its private label clients’ products online primarily through www.LiftedMade.com.

 

Description of Legal Proceedings

 

Lifted currently is involved in three pending lawsuits, two as the plaintiff and one as the defendant:

(a)Warrender Enterprise, Inc. d/b/a Lifted Liquids, a Wisconsin corporation, Plaintiff, v. Merkabah Labs, LLC, a Colorado limited liability company; Merkabah Technologies, LLC, a Colorado limited liability company; Ryan Puddy, an individual; and Ralph L. Taylor III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC) In January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and former Lifted representative Ralph L. Taylor III in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by Merkabah Labs, LLC and Ralph L. Taylor III. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit. 

(b)Martha, Edgar v. Lifted Liquids – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage. 

(c)Lifted Liquids, Inc., Plaintiff, v. Luxvoni LLC d/b/a Luxvoni Marketing Solutions; Does I through X, inclusive; and Roe  


12



Business Entities I through X, inclusive, Defendants (United States District Court for Clark County, Nevada; Civil Case No. A-20-817416-C) On July 1, 2020, Lifted filed a lawsuit against Luxvoni LLC d/b/a Luxvoni Marketing Solutions (“Luxvoni”) in regard to Luxvoni’s money back guarantee of a $25,000 upfront fee paid by Lifted to Luxvoni for digital marketing services which were never provided to Lifted.

 

During June 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following two lawsuits:

(1)Mile High Labs, Inc., Plaintiff, v. Warrender Enterprise, Inc. d/b/a Lifted Liquids, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW); and 

(2)Accelerated Analytical, Inc., et al. v. Lifted Liquids, Inc. d/b/a Lifted Made, et al., Case No. 3:20-cv-442-wmc (United States District Court for the Western District of Wisconsin) 

 

Costs and effects of compliance with environmental laws

 

To Lifted’s knowledge, Lifted does not currently use or generate any hazardous materials in its operations.

 

The Lifted Made Merger

 

The terms of the Lifted Merger were as follows:

 

·The Company acquired 100% of the ownership of Lifted for $3,750,000 in cash, plus note consideration (the "Promissory Note") of $3,750,000, plus 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), plus 645,000 shares of unregistered common stock of the Company that will constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), plus warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Corporation at the closing of the Merger (the "Warrants"). 

 

·The Promissory Note, payable jointly by the Company and Lifted to Nicholas S. Warrender, is in the principal amount of $3,750,000. The Promissory Note is secured by all of the assets of the Company and Lifted, and by a pledge of all of the common stock of Lifted, Ablis, Bendistillery and Bend Spirits that are owned by the Company. The Promissory Note accrues interest at the rate of 2% annually, and has a term of five years, subject to mandatory partial prepayment using 50% of all capital raised by the Company other than capital raised in connection with two potential acquisitions in Wisconsin, and subject to mandatory full prepayment if and when Lifted achieves an aggregate post-Closing EBITDA of $7,500,000. Lifted will not be using any of the loan or grant money that Lifted has received from the SBA to make any payments on the Promissory Note payable jointly by the Company and Lifted to Nicholas S. Warrender. 

 

·The purpose of the 645,000 shares of unregistered common stock of Acquired Sales that constitutes the Deferred Contingent Stock is to incentivize certain persons whom Nicholas S. Warrender considers necessary to allow Lifted and the Company to succeed going forward. Among other persons, Nicholas S. Warrender designated as recipients of shares of the Deferred Contingent Stock certain employees of Lifted and William C. "Jake" Jacobs, the Company's President and CFO. The vesting of certain shares of the Deferred Contingent Stock is subject to certain terms and conditions, and if any of such terms and conditions are not met then any unvested Deferred Contingent Stock will be issued and delivered to Nicholas S. Warrender as additional Merger consideration. 

 

·The purpose of the Warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share is to incentivize certain persons whom Nicholas S. Warrender considers necessary to allow Lifted and the Company to succeed going forward. Among other persons, Nicholas S. Warrender designated as recipients of Warrants certain employees, officers and directors of Lifted and the Company. The vesting of certain of the Warrants will be subject to certain terms and conditions, and if any of such terms and conditions are not met then any unvested Warrants will be terminated.   

 

·Nicholas S. Warrender was granted certain registration rights for the 3,900,455 shares of the Company’s unregistered common stock that he received in the Merger, pursuant to the terms and conditions of a Registration Rights Agreement. 

 

·Nicholas S. Warrender, the Company's President and CFO William C. “Jake” Jacobs, and the Company's Chairman and CEO Gerard M. Jacobs, who together as a group have stockholder and managerial control of the Company, entered into a Stockholders Agreement to vote in concert regarding the election of directors of the Company and on certain other matters.   

 

·The Company has entered into a long-term employment agreements with Nicholas S. Warrender, William C. "Jake" Jacobs, and Gerard M. Jacobs, pursuant to which each of them is entitled to $100,000 in base salary and an annual bonus  


13



stemming from the Company’s cash management bonus pool.

 

·The effects of the Merger are that all assets, property, rights, privileges, immunities, powers, franchises, licenses, and authority of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) and Lifted have vested in Lifted as the surviving entity in the Merger, and all debts, liabilities, obligations, restrictions, and duties of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) have become the debts, liabilities, obligations, restrictions, and duties of Lifted as the surviving entity in the Merger. Lifted is operating as a wholly-owned subsidiary of the Company. 

 

·The articles of incorporation of Lifted are the articles of incorporation of the surviving entity in the Merger, and the by-laws of Lifted are the by-laws of the surviving entity of the Merger. 

 

·Upon the Closing of the Merger, the number of directors of the Corporation has been increased from seven to nine: Gerard M. Jacobs, JD (Chairman), Nicholas S. Warrender (Vice Chairman), Vincent J. Mesolella (Lead Outside Director), Joshua A. Bloom, MD, Thomas W. Hines, CPA, CFA, James S. Jacobs, MD, Michael D. McCaffrey, JD, Richard E. Morrissy, and Kevin J. Rocio.  

 

·Upon the Closing of the Merger, the officers of the Corporation are as follows, each to hold office until his successor is  duly elected or appointed and qualified or until his earlier death, resignation, or removal in accordance with applicable Law: Gerard M. Jacobs, JD - Chairman, CEO and Secretary;  William C. "Jake" Jacobs, CPA - President, CFO and Treasurer; and Nicholas S. Warrender - Co-Founder, Vice Chairman, and Chief Operating Officer. 

 

Source of Funds for the Lifted Merger

 

The source of funds for the $3,750,000 cash component of the acquisition of Lifted was proceeds from previous sales of Acquired Sales Corp.’s Series A Convertible Preferred Stock (convertible at $1 per share of common stock of the Company) and Series B Convertible Preferred Stock (convertible at $5 per share of common stock of the Company). We anticipate that the source of funds to repay the $3,750,000 Promissory Note component of the acquisition of Lifted will be proceeds from future sales of Acquired Sales Corp.’s equity securities, and revenue from Lifted's business. Professional costs in connection with the Merger were paid using cash on hand that was sourced from previous sales of Acquired Sales Corp.’s Series A Convertible Preferred Stock and Series B Convertible Preferred Stock.

 

The Market

 

Delta-8-THC, CBD, CBG and CBN are chemical compounds which can be derived from hemp. On December 20, 2018, President Donald J. Trump signed the Agricultural Improvement Act of 2018, which is more commonly known as the “2018 Farm Bill”. The 2018 Farm Bill legalizes hemp cultivation and declassifies hemp as a Schedule I controlled substance. The US Food and Drug Administration (“FDA”) has stated that although hemp is no longer an illegal substance under federal law, the FDA continues to regulate cannabis products under the Food, Drug, and Cosmetic Act (“FD&C Act”) and Section 351 of the Public Health Service Act. In addition, several states have enacted laws and regulations that negatively impact the sale of cannabinoid-infused products.

 

Lifted’s product sales of cannabinoid-infused products are typically made through distributors, with a limited number of sales online or direct to retail outlets.

 

While Lifted is optimistic regarding the future of its business selling hemp-derived cannabinoid products, the manufacture and sale of Canna-Infused Products involve significant risks that have the potential to bankrupt Lifted and the Company.

 

Government Regulation

 

Lifted is subject to a variety of laws in the United States and elsewhere. In the United States, despite cannabis having been legalized at the state level for medical use in many states and for adult recreational use in a number of states, cannabis, other than plants of the same genus that meet the definition of industrial hemp, continues to be categorized as a Schedule I controlled substance under the federal Controlled Substances Act (“CSA”), and subject to the Controlled Substances Import and Export Act (“CSIEA”). As of December 20, 2018, the 2018 Farm Bill, formally known as the Agriculture Improvement Act of 2018, has reclassified hemp for commercial use by removing it from its Schedule I Status under the CSA, and Lifted seeks to operate in compliance with the legislation.


14



Canna-Infused Products Companies are subject to regulation by federal government state and local governments. The health and safety impacts of cannabinoids have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that CBDs can have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. The regulation of hemp, hemp oil, CBDs, and cannabinoid-infused products is evolving. Lifted may become subject to new rules, regulations, moratoriums, prohibitions, or other restrictions or impediments upon Canna-Infused Products Companies from U.S. federal agencies, such as the US Food and Drug Administration (the “FDA”), and/or state and local governments. The FDA sometimes appears to believe that CBDs are drugs, and that the sale of most cannabinoid-infused products without FDA approval is illegal. In deference to the FDA’s position, various states and municipalities have similarly declared that the sale of certain cannabinoid-infused products are illegal.

 

Hemp and hemp-derived cannabinoid-infused products which exceed a delta-9 THC concentration of 0.3% are illegal. Any failure to keep the delta-9 THC concentration in hemp or cannabinoid-infused products below 0.3% could subject us to action by regulatory authorities and/or to lawsuits by consumers, which could have a material adverse effect upon our Company's business and the trading price of our common stock.

 

In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the THC levels reflected in consumers’ blood tests are the result of CBD-infused products or THC-infused products. This may result in regulatory actions or lawsuits against the Company.

 

Also, certain hemp products may, over time, gradually increase their delta-9-THC concentration, and this may ultimately cause such products to exceed the 0.3% delta-9-THC concentration level, making such products illegal in certain jurisdictions. If this happens, we could be subject to regulatory action that could have a material adverse effect upon our Company.

 

Lifted is attempting to only conduct business related to manufacturing and commercializing hemp-derived products to the extent permitted in jurisdictions where it may operate. Lifted intends to ensure regulatory compliance in each jurisdiction in which it operates.

 

Competition

 

Lifted faces intense competition in the cannabinoid industry from both existing and emerging companies that offer similar products to Lifted. Some of Lifted's current and potential competitors may have longer operating histories, greater financial, marketing and other resources and larger customer bases. Given the rapid changes affecting the cannabinoid industry nationally and locally, Lifted may not be able to create and maintain a competitive advantage in the marketplace. Lifted’s success will depend on its ability to keep pace with any changes in local and national markets, especially in light of legal and regulatory changes. Lifted’s success will depend on its ability to respond to, among other things, changes in the economy, market conditions and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material adverse effect on Lifted’s financial condition, operating results, liquidity, cash flow and operational performance. In addition, there is massive competition in all aspects of the sanitizer sale and resale business.

 

Receipt of Loans under the Economic Injury Disaster Loan Program and the Paycheck Protection Program

 

In response to the coronavirus (COVID-19) pandemic, the U.S. Small Business Administration (the “SBA”) is making small business owners eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000 under its Economic Injury Disaster Loan program (the “EIDL”). This advance provides economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. Lifted applied for and received a $10,000 loan advance under the EIDL (“EIDL Advance”) on April 20, 2020. Lifted recognized a $10,000 gain on the forgiveness of the EIDL Advance on April 21, 2020. Lifted also applied for and received a loan (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020. The PPP Loan was issued by BMO Harris Bank (the “Lender”) in the aggregate principal amount of $149,622.50 and evidenced by a promissory note (the “Note”), dated April 14, 2020 issued by Lifted to the Lender. The Note matures on April 14, 2022. The Note bears interest at a rate of 1.00% per annum, payable monthly commencing on November 14, 2020, following an initial deferral period as specified under the PPP. As of June 30, 2020, Lifted had an accrual of $320 for the interest on the PPP Loan. The Note may be prepaid by Lifted at any time prior to maturity with no prepayment penalties. Proceeds from the PPP Loan will be available to Lifted to fund designated expenses, including certain payroll costs and other permitted expenses, in accordance with the PPP. Under the terms of the PPP, up to the entire amount of principal and accrued interest of the PPP Loan may be forgiven to the extent that at least 75% of the PPP Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the SBA under the PPP. Acquired Sales Corp. believes that Lifted has used at least 75% of the PPP Loan amount for designated qualifying expenses and Lifted plans to apply for forgiveness of the PPP Loan in accordance with the terms of the PPP. No assurance can be given that Lifted will obtain forgiveness of the PPP Loan in whole or in part.


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With respect to any portion of the PPP Loan that is not forgiven, the PPP Loan will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, and breaches of the provisions of the Note.

 

In prior years, Acquired Sales Corp.’s payables have been greater than its cash on hand. Historically, Acquired Sales Corp. has had inconsistent income generating ability and has therefore been reliant on raising money from loans or stock sales.

 

Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series A Convertible Preferred Stock (“Series A Preferred Stock”)

 

Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Series A Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Series A Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Series A Preferred Stock will receive an annual 3% dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series A Preferred Stock. On July 6, 2020, the Company filed with the SEC an amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series A Preferred Stock may be converted.

 

Acceptance of Subscriptions From Accredited Investors to Purchase Newly Issued Series B Convertible Preferred Stock (“Series B Preferred Stock”)

 

Between July 24, 2019 and December 5, 2019, the Company accepted subscriptions from accredited investors to purchase 100,000 shares of newly issued Series B Preferred Stock for an aggregate purchase price of $500,000 in cash. These 100,000 shares of Series B Preferred Stock are convertible at the option of the holder into 100,000 shares of newly issued common stock of the Company. The Series B Preferred Stock will receive an annual 3% dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Series B Preferred Stock. On July 6, 2020, the Company filed with the SEC an amended Registration Statement on Form S-1/A covering 30% of the common stock shares into which the Series B2 Preferred Stock may be converted.

 

Acquisition Process

 

The structure of the Company’s participation in business opportunities and ventures will continue to be situational. The Company is likely to structure future acquisitions as a purchase of 19.99% or less, or 100%, of a target company’s equity ownership interest, or as a so-called tax-free reorganization. It is likely that the anticipated value of the business and/or securities that the Company acquires relative to the current value of the Company’s securities will result in the issuance of a relatively large number of newly issued shares of the Company, and, as a result, substantial additional dilution to the percentage ownership of our current stockholders. Moreover, the Company’s present management and shareholders may not have control of a majority of our voting shares following a merger or purchase of stock. It is possible that the shareholders of the acquired entity or the persons who provide the capital to the Company to finance a merger or purchase of stock will gain control of the Company’s voting stock and the Company’s directors may resign and new directors may be appointed without any vote by the shareholders. Those directors are entitled to replace the Company’s officers without stockholder vote.

 

In regard to nearly all of the Company’s potential acquisitions, the Company is typically focused upon acquiring 19.99% or less, or 100%, of existing privately held businesses whose owners are willing to consider selling a percentage of the equity ownership interest of their businesses, or merging their entire businesses into the Company or a wholly-owned subsidiary of the Company in a so-called tax-free reorganization, and whose management teams are enthusiastic about continuing to operate their businesses following the transactions with the Company.

 

Closing such purchases of stock or so-called tax-free reorganizations will likely require the Company to raise millions of dollars of capital, in order to pay the cash portion of the transaction consideration. The Company can provide no assurance or guaranty whatsoever that it will be able to raise such millions of dollars of capital on acceptable terms and conditions, if at all.

 

An Investment Committee appointed by the Company’s Board of Directors, currently consisting of our CEO Gerard M. Jacobs, JD, our Chief Operating Officer Nicholas S. Warrender, our director Thomas W. Hines, CPA, CFA, and our President and CFO William C. "Jake" Jacobs, CPA, will review material furnished to it and will vote whether or not the Investment Committee believes a potential acquisition is in the Company’s best interests and the interests of the Company’s shareholders. If the Investment Committee votes unanimously to approve a potential acquisition, then such acquisition will be presented to the Board of Directors of the Company for their review and a vote. The Company does not intend to proceed forward with a potential acquisition without the unanimous approval of the Investment Committee and approval by a majority of the Company’s Board of Directors.

 

The Company intends to source acquisition opportunities through Gerard M. Jacobs, Nicholas S. Warrender, William C. "Jake" Jacobs, and directors and their contacts, and in some cases through finders. These contacts include professional advisors such as attorneys and accountants, securities broker dealers, other members of the financial community, other businesses and others who


16



may present solicited and unsolicited proposals. Management believes that business opportunities may become available to us due to a number of factors, including, among others: (1) the Company’s ownership of shares in Lifted and other Canna-Infused Products Companies; (2) management’s historical experience building large public companies; (3) management’s contacts and acquaintances; and (4) the Company’s flexibility with respect to the manner in which the Company may be able to structure, finance, merge with or acquire any business opportunity.

 

The analysis of new business opportunities will be undertaken by or under the supervision of the Investment Committee appointed by our Board of Directors. Inasmuch as the Company will have limited funds available to search for business opportunities, the Company will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. The Company will, however, investigate, to the extent believed reasonable by the Investment Committee, such potential business opportunities by conducting a so-called “due diligence investigation”.

 

In a due diligence investigation, the Company intends to obtain and review materials regarding the business opportunity. Typically, such materials will include information regarding a target business’ products, services, contracts, management, ownership, and financial information. In addition, the Company intends to cause the Investment Committee to meet personally with management and key personnel of target businesses, ask questions regarding the target businesses’ prospects, tour facilities,

and conduct other reasonable investigation of the target businesses to the extent of the Company’s limited financial resources and management and technical expertise.

 

There is no guarantee that the Company can obtain or maintain the funding needed for its operations, including the funds necessary to search for and investigate acquisition candidates, and to close an acquisition including paying the substantial costs of legal, accounting and other relevant professional services.

 

As of August 12, 2020, Acquired Sales Corp. has cash on hand of approximately $112,730, which are the remaining proceeds from the sale of Series A Convertible Preferred Stock between February 27, 2019 and May 13, 2019, and proceeds from the sale of Series B Convertible Preferred Stock between July 24, 2019 and December 5, 2019. As of August 12, 2020, Lifted had cash on hand of approximately $195,995. In prior years, Acquired Sales Corp.’s payables have been greater than its cash on hand. Historically, Acquired Sales Corp. has had inconsistent income generating ability and is therefore has been reliant on raising money from loans or stock sales.

 

Offices

 

Our CEO lives in Illinois, our President and CFO lives in Florida, and our COO lives in Wisconsin. We currently do not have a dedicated corporate office for Acquired Sales Corp. Lifted’s corporate office is located in Zion, Illinois. There are no agreements or understandings with respect to any office facility subsequent to the completion of any potential acquisition. We may lease a corporate headquarters in connection with a change in the management of our Company, or in connection with the completion of a merger or acquisition, or otherwise.

 

Employees

 

Gerard M. Jacobs, our Chairman, Chief Executive Officer and Secretary, manages the Company’s operations with the assistance of William C. "Jake" Jacobs, our President, Chief Financial Officer and Treasurer, and Nicholas S. Warrender, our Chief Operating Officer, under the Executive Employment Agreements described above.

 

We expect to continue to use consultants, attorneys, accountants and independent contractors as necessary.

 

Reports to Security Holders

 

Acquired Sales Corp. is subject to reporting obligations under the Exchange Act. These obligations include an annual report under cover of Form 10-K, with audited financial statements, unaudited quarterly reports under cover of Form 10-Q, occasional reports under cover of Form 8-K, and other required filings. The public may read and copy any materials Acquired Sales Corp. files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information of the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

 

NOTE 2 – POST-MERGER INFORMATION AND ACCOUNTING TREATMENT OF THE MERGER

 

There are no material differences in the rights of the Company’s shareholders as a result of the Merger, as the nature of the shares of common stock of the Company has not changed due to the Merger. However, there has been stockholder dilution with additional shares and warrants outstanding.


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As of the date of acquisition (February 24, 2020), the Merger was considered a business combination. The accounting treatment of the Merger is that the Company is deemed to be the accounting acquirer of Lifted, and Lifted is deemed to be the accounting acquiree, under the acquisition method of accounting.

 

The Application of Accounting Guidance to the Merger

 

Quoted below are the accounting standards codification guidance relating to the accounting treatment of the Company’s acquisition of Lifted as of the date of Merger, followed by the Company’s comments regarding the application of that guidance to the Merger:

 

Guidance: “Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following:

 

1. a. The relative voting rights in the combined entity after the business combination. The acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity. In determining which group of owners retains or receives the largest portion of the voting rights, an entity shall consider the existence of any unusual or special voting arrangements and options, warrants, or convertible securities.”

 

The Company’s Comments: In evaluating which entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity, the Company observes that: (1) the voting rights held by the Company’s outstanding common stock, options and warrants, and convertible securities represented a total of 13,684,538 shares on a fully diluted basis; and (2) the voting rights held by the Company’s outstanding common stock, options and warrants, convertible securities, 3,900,455 shares of common stock issued to Nicholas S. Warrender, 645,000 shares of deferred contingent common stock issued in the merger, and the 1,820,000 warrants granted in the merger, represented a total of 20,049,993 shares on a fully diluted basis. Consequently, the existing shareholders of the Company owned 68% of the merged entity on a fully diluted basis. Note: many of the 645,000 shares of deferred contingent stock and many of the 1,820,000 warrants granted in the transaction were issued to current officers and directors of the Company, and, pursuant to the Compensation Agreement dated June 19, 2019, as a result of the Company’s closing of the acquisition of Lifted, Gerard M. Jacobs and William C. Jacobs were awarded warrants to purchase 250,000 and 225,000 shares of common stock of the Company at $5.00 per share, respectively, so the existing shareholders of the Company actually owned more than 68% of the combined entity on a fully diluted basis. The foregoing analysis of the relative voting rights of the combined entity suggests that the Company should be considered to be the accounting acquirer in the Merger.

 

Guidance: 2. b. The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest. The acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity.”

 

The Company’s Comments: The stockholders agreement entered into between Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs effectively prevents Nicholas S. Warrender from exercising any control over the combined entity that is not approved by the Company’s current management team of Gerard M. Jacobs and William C. Jacobs. This effect of the stockholders agreement suggests that the Company should be considered the accounting acquirer in the Merger.

 

Guidance:3. c. The composition of the governing body of the combined entity. The acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity.”

 

The Company’s Comments: The pre-closing directors of the Company had seven seats on the Board of Directors of the combined entity, and Nicholas S. Warrender and his nominee Kevin J. Rocio received only two seats. In addition, the stockholders agreement between Nicholas S. Warrender, Gerard M. Jacobs and William C. Jacobs effectively prevents Nicholas S. Warrender from taking control over the Board of Directors of the combined entity post-closing. The foregoing analysis suggests that the Company should be considered the accounting acquirer in the Merger.  

 

Guidance: 4. d. The composition of the senior management of the combined entity. The acquirer usually is the combining entity whose former management dominates the management of the combined entity.”

 

The Company’s Comments: The pre-closing officers of the Company continue to serve as the Company’s Chairman, CEO, President, CFO, Treasurer and Secretary. The only additional officer role is that of Nicholas S. Warrender, who now serves as the Company’s Vice Chairman and COO. The foregoing analysis suggests that the Company should be considered the accounting acquirer in the Merger.  

 

Guidance:5. e. The terms of the exchange of equity interests. The acquirer usually is the combining entity that pays a premium over the precombination fair value of the equity interests of the other combining entity or entities.”

 

The Company’s Comments: It is very difficult to say with any certainty whether or not the Company paid a premium over the precombination fair value of Lifted. Most of the companies in the cannabis industry are losing money and nevertheless are


18



enjoying market capitalizations that are massively higher than the consideration that the Company paid to acquire Lifted. However, Lifted has historically been involved in the vaping and e-liquids industry, and it is unclear what discount to fair value should be attributed to that involvement. The foregoing analysis does not assist us in reaching any conclusion as to which entity should be considered the accounting acquirer in the Merger.

 

Guidance: “55-13 The acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities.”

 

The Company’s Comments: In terms of assets, prior to the closing, the Company’s cash on hand of over $4 million significantly exceeded Lifted’s assets. On the other hand, Lifted’s revenues and earnings significantly exceed the Company’ revenue and earnings. This analysis does not assist us in reaching any conclusion as to which entity should be considered the accounting acquirer in the Merger.

 

Guidance: “55-14 In a business combination involving more than two entities, determining the acquirer shall include a consideration of, among other things, which of the combining entities initiated the combination, as well as the relative size of the combining entities, as discussed in the preceding paragraph.”

 

The Company’s Comments: This consideration is not applicable as the Merger of the Company and Lifted did not involve more than two entities.

 

Guidance: 55-15 A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed to issue equity interests to effect a business combination, one of the combining entities that existed before the business combination shall be identified as the acquirer by applying the guidance in paragraphs 805-10-55-10 through 55-14. In contrast, a new entity that transfers cash or other assets or incurs liabilities as consideration may be the acquirer.”

 

The Company’s Comments: This consideration is not applicable as the Company and Lifted are not structuring a business combination.

 

Conclusion

 

Based on the foregoing analysis of the facts surrounding the Company’s acquisition of Lifted, it is the Company’s position that the Company is the accounting acquirer of Lifted in the Merger, and Lifted is the accounting acquiree in the Merger, under the acquisition method of accounting.

 

As such, as of February 24, 2020 (the acquisition date), the Company recognized, separately from goodwill, the identifiable assets acquired and the liabilities assumed in the Merger.

 

The federal income tax consequences of the Merger are as follows: The transaction is expected to be booked as a tax-free exchange of stock pursuant to Internal Revenue Code Section 368, resulting in no federal income tax consequences of the stock portion of the transaction.


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Purchase Price Allocation

 

The following table presents the purchase price allocation:

 

Consideration:

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$ 3,750,000   

 

 

 

 

 

 

 

 

Note consideration

 

 

 

$ 3,750,000   

 

 

 

 

 

 

 

 

3,900,455 shares of unregistered common stock of the Company valued as of January 7, 2020 (date of entering into the Agreement and Plan of Merger)

 

 

 

 

 

 

 

$ 10,726,251   

 

 

 

 

 

 

 

 

Warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share

 

 

 

 

 

 

 

$ 4,980,150   

 

 

 

 

 

 

 

 

Total merger consideration

 

 

 

$ 23,206,401   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets acquired:

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$ 619,390   

 

Accounts Receivable

 

 

 

$ 341,387   

 

Inventory

 

 

 

 

$ 267,474   

 

Loan to Shareholder

 

 

 

$ 9,000   

 

Fixed Assets

 

 

 

$ 80,003   

 

Intangible Assets

 

 

 

$ 4,444   

 

Security Deposit

 

 

 

$ 1,600   

 

Operating Lease Right-of-Use Asset, net of Right-of-Use Asset Amortization of $20,010 in 2020 and $17,336 in 2019

$ 23,346   

 

Goodwill

 

 

 

 

$ 22,292,767   

 

Total assets acquired

 

 

 

$ 23,639,411   

 

 

 

 

 

 

 

Liabilities assumed:

 

 

 

 

 

 

Accounts Payable and Accrued Expenses

 

 

$ 345,075   

 

Operating Lease Liability

 

 

 

$ 15,569   

 

Deferred Revenue

 

 

 

$ 64,696   

 

Non-Current Operating Lease Liability

 

 

$ 7,670   

 

Total Liabilities assumed

 

 

 

$ 433,010   

 

 

 

 

 

 

 

Net Assets Acquired

 

 

 

$ 23,206,401   

 

 

 

 

 

 

 

 

 

 

 

 

Net Assets Acquired (Excluding Goodwill)

$ 913,634   

 

 

Determination of the Fair Value of the Shares of Common Stock and Warrants Issued as Part of the Merger Consideration

 

The Company determined the fair value of the shares of common stock issued on February 24, 2020 as part of the Merger Consideration by multiplying the stock closing price on January 7, 2020 ($2.75) by the number of common stock shares issued (3,900,455) in the Merger. January 7, 2020 was the date of entering into the Agreement and Plan of Merger.

 

The Company determined the fair value of the warrants issued on February 24, 2020 as part of the Merger Consideration by using the Black-Scholes valuation model, which incorporated the following assumptions: expected future stock volatility 362%; risk-free interest rate of 1.55%; dividend yield of 0% and an expected term of 2.57 years. The expected future stock volatility was based on the historical volatility of Acquired Sales Corp.’s common stock price per share. The risk-free interest rate was based on the U.S. Federal treasury rate for instruments due over the expected term of the warrants. The expected term of each warrant was based on the midpoint between the date the warrant vested and the contractual term of the warrant. The values of the warrants were considered part of the Merger consideration.


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Allocation of Purchase Price to Goodwill

 

The Company’s primary motivation for acquiring Lifted was to secure the exclusive services of Nicholas S. Warrender. Mr. Warrender founded Lifted in 2015 with $900, and since its inception has done a masterful job staying ahead of e-liquid and cannabinoid industry trends, navigating industry challenges and launching innovative, advanced branded products before competitors launched their branded products. Mr. Warrender is focused and relentless, and attracts many people who like his energy and creativeness and want to do business with him. In the Company’s opinion, Lifted’s customers do business with Lifted primarily because of Mr. Warrender; and, at the time of the Merger, Mr. Warrender was the only full time employee handling sales for Lifted. There were no other material identifiable intangible assets that were considered appropriate for recognition at the time of close. In a very significant sense, Lifted is Mr. Warrender, and Mr. Warrender is Lifted. This is why the Company recognized $22,292,767 of the total acquisition consideration paid in the Merger as being goodwill.

 

OLCC Review of New Directors of the Company

 

To our knowledge, our directors Nicholas S. Warrender and Kevin J. Rocio still need to be formally approved by the Oregon Liquor Control Commission ("OLCC"), in light of the Company's ownership of common stock of distilled spirits manufacturers Bendistillery and Bend Spirits, Bend, Oregon. Pursuant to the OLCC’s procedures, the Company has submitted to the OLCC Personal History Forms for Nicholas S. Warrender and Kevin J. Rocio, and to the Company’s knowledge, neither of Nicholas S. Warrender nor Kevin J. Rocio has any personal history that would disqualify him from serving as a director of the Company. The Company would plan to consult with Oregon legal counsel in the event that the OLCC were to object to either Nicholas S. Warrender or Kevin J. Rocio serving as a director of the Company, a situation that the Company presently has no grounds to expect to occur.

 

While no guarantee or assurance can be given as to the ultimate consequences in the event that the OLCC were to object to either Nicholas S. Warrender or Kevin J. Rocio serving as a director of the Company, the management of the Company believes that the worst case scenario in the event that the OLCC were to object to Kevin J. Rocio serving as a director of the Company would involve Kevin J. Rocio being removed from the Board of Directors of the Company, and that the worst case scenario in the event that the OLCC were to object to Nicholas S. Warrender serving as a director of the Company would involve the Company being forced to sell the shares of common stock that the Company owns in Bendistillery Inc. and Bend Spirits, Inc., even if such a sale is at a loss.

 

Description of Certain Key Provisions of the Transaction Documents Relating to the Lifted Merger Agreement

 

Registration Rights Agreement

 

In connection with the Merger, the Company signed a Registration Rights Agreement granting Nicholas S. Warrender, or his assigns, “piggyback” and “demand” registration rights in regard to any and all Company registration statements filed with the SEC on or prior to a termination date set out in the agreement, in order to permit the registration of all 3,900,455 shares of Common Stock issued to Mr. Warrender as Stock Consideration in the Merger ("Registrable Shares"). The Registration Rights Agreement can be summarized as follows:

 

Subject to certain limitations, Mr. Warrender, or his assigns, may demand registration of all or any portion of the Registrable Shares at any time beginning on the 120th day following the closing of the Merger Agreement. The Company must then file a registration statement within ten days. The Company may postpone for up to 180 days the filing or effectiveness of a registration statement for a demand registration if the board of directors determines in its reasonable good faith judgment that such demand registration would (i) materially interfere with a significant acquisition, corporate organization, financing, securities offering or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act. The Company may delay a demand registration hereunder only once in any period of 12 consecutive months.

 

No demand registration shall be required where in the judgment of the Company, its legal counsel, and/or SEC guidance and comments the registration would be deemed a primary offering pursuant to Securities Act Rule 415, which is interpreted by the SEC staff to prohibit registrations of stock for resale where the seller is deemed to be engaged in a primary offering of behalf of the issuer. The registration rights agreement shall terminate when no Registrable Shares remain outstanding.

 

Secured Promissory Note

 

At the closing of the Merger, the Company executed a secured promissory note of $3,750,000 payable to Nicholas S. Warrender (the “Promissory Note”) which can be summarized as follows:

 

Interest on the Promissory Note shall be 2% per year. The maturity date of the Promissory Note is the earlier of (a) the date which is 30 days after the last day of the calendar quarter during which Lifted's aggregate EBITDA (aggregate earnings before interest, taxes, depreciation and amortization ) since the Closing Date of the Merger exceeds $7.5 million, or (b) the date which is the fifth anniversary of the closing date of the Merger.


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The Promissory Note shall have mandatory prepayments, subject to certain limitations, within five business days following the closing of any equity or debt capital raise by the Company or Lifted following the date of the Merger Agreement wherein Mr. Warrender is entitled to be paid at least 50% of the net proceeds of such capital raise toward a prepayment of the principal and accrued interest on the Promissory Note, excluding only the capital raise for the potential Wisconsin Acquisitions referred to in Section 5.23(a) of the Merger Agreement. See “Obligation to Pursue Two Opportunities” below. Lifted will not be using any of the loan or grant money that Lifted has received from the SBA to make any payments on the Promissory Note payable jointly by the Company and Lifted to Nicholas S. Warrender.  

 

The Promissory Note is secured by (a) a first lien security interest in all of the assets of the Company and Lifted; and (b) a pledge of: (i) all of the capital stock of Lifted; (ii) all of the common stock of Bendistillery, Bend Spirits and Ablis that is owned by the Company; and (iii) all of the capital stock of any other entity owned by the Company, Lifted or any of their subsidiaries, pursuant to a Collateral Stock Pledge Agreement between Mr. Warrender, as Secured Party, and the Company and Lifted, as Pledgors.

 

Stockholders Agreement

 

At the closing of the Merger Agreement, our COO Nicholas S. Warrender, our CEO Gerard M. Jacobs, and our President and CFO William C. "Jake" Jacobs entered into a Stockholders Agreement which can be summarized as follows: each of them will vote all shares of our common stock now or hereafter owned or controlled by him as unanimously agreed upon by all three of them, including as to the following matters: election, removal and filling vacancies on our board of directors; our charter and bylaws; employment agreements, consulting agreements, fee agreements, base salaries, bonuses, management bonus pools amounts and calculations, management bonus pool allocations and payments, future stock options or warrants issuances, and any other direct or indirect compensation or benefits of any nature whatsoever; acquisitions; divestitures; and capital raises.

 

Executive Employment Agreements

 

At the closing of the Merger, the Company entered into employment agreements with Nicholas S. Warrender to serve as Co-Founder, Vice Chairman and Chief Operating Officer of the Company and as Chief Executive Officer of Lifted, with Gerard M. Jacobs, JD, to serve as Chairman, Chief Executive Officer and Secretary of the Company, and with William C. "Jake" Jacobs, CPA to serve as President, Chief Financial Officer and Treasurer of the Company (collectively the “Executive Employment Agreements”), which can be summarized as follows:

 

Each of the Executive Employment Agreements is a "rolling" five year employment agreement wherein the executive's employment is effective and shall continue until the fifth anniversary of the commencement of such Executive Employment Agreement, unless terminated. Each of the Executive Employment Agreements shall be deemed to be automatically extended, upon the same terms and conditions, for additional periods of one year (extending the term of such Executive Employment Agreement to five years after each such extension date), unless either party provides written notice of such party’s intention not to extend the term of such Executive Employment Agreement at least 90 days’ prior to the applicable extension date.

 

During the employment term, each executive shall devote substantially all of his business time and attention to the performance of his duties under his Executive Employment Agreement and shall not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the board of directors of the Company; provided, that such executive shall be permitted to continue to participate as an officer of any corporation that owns real estate as of the date of his Executive Employment Agreement with the Company and that is owned by a family trust of which such executive is a grantor or beneficiary, and provided further that such executive, with the prior written consent of the board of directors of the Company shall be permitted to act as a director, trustee, committee member or principal of any type of business, civic or charitable organization and to purchase or own less than 5% of the publicly traded securities of any corporation provided, however, that such ownership represents a passive investment and that such executive is not a controlling person of, or a member of a group that controls, such corporation, and that such activities do not interfere with the performance of such executive's duties and responsibilities to the Company.

 

The annual rate of each executive's base salary under his Executive Employment Agreement is $100,000.

 

Each executive shall participate in the Company’s annual company-wide management bonus pool, which can be generally described as a cash set-aside for management bonuses of an amount equal to 33% of the amount (if any) by which the Company's actual annual consolidated EBITDA exceeds an annual consolidated EBITDA target amount that is mutually agreed upon between the Chairman of the Compensation Committee of the board of directors, on the one hand, and Nicholas S. Warrender, Gerard M. Jacobs and William C. "Jake" Jacobs, on the other hand, with the allocation of such management bonus pool to be determined by unanimous written agreement of such three executives.

 

The Company will provide to each executive an employee benefits package including fully paid Blue Cross/Blue Shield or equivalent family health, vision and dental insurance. The Company will also provide to each executive prompt reimbursement for all documented business related expenses paid or incurred by such executive in connection with Acquired Sales, including but not


22



limited to airfare, rail, taxi, rental cars, parking, tolls, gasoline for business trips, meals, entertainment, hotel, office supplies, mobile phone, internet, hotspot, and postage expenses.

 

Each executive's employment may be terminated by either the Company or such executive at any time and for any reason, provided that any termination of such executive's employment by the Company without cause will trigger significant payment obligations by the Company to such executive.

 

Impact of the Merger on Gerard M. Jacobs' and William C. "Jake" Jacobs' Compensation Agreement

 

The Company entered into a Compensation Agreement dated as of June 19, 2019, with our CEO Gerard M. Jacobs and our President and CFO William C. "Jake" Jacobs. The material terms of the Compensation Agreement can be summarized as follows:

 

(1) Starting during June 2019 until the closing of the Lifted Merger on February 24, 2020, we paid Gerard M. Jacobs and William C. "Jake" Jacobs consulting fees of $7,500 and $5,000 per month, respectively. Upon the closing of the Lifted Merger, we entered into Executive Employment Agreements with Gerard M. Jacobs and William C. "Jake" Jacobs as described in the section above entitled "Executive Employment Agreements";

 

(2) The closing of the Lifted Merger triggered obligations of the Company to pay cash bonuses to the Company's CEO Gerard M. Jacobs and the to the Company's President and CFO William C. "Jake" Jacobs of $250,000 and $100,000, respectively, which bonuses have not yet been paid, and which are due and payable upon demand;

 

(3) Upon the earlier of December 1, 2020, or the first date when we have raised a total of at least $15 million after January 1, 2019, we will pay Gerard M. Jacobs and William C. "Jake" Jacobs cash bonuses of $250,000 and $100,000, respectively;

 

(4) Upon the earlier of December 1, 2021, or the first date when we have raised a total of at least $25 million after January 1, 2019, we will pay Gerard M. Jacobs and William C. "Jake" Jacobs cash bonuses of $250,000 and $100,000, respectively;

 

(5) The terms of Gerard M. Jacobs' stock options granted by us to purchase shares of common stock of AQSP which were set to expire (unless previously exercised) during November 2020 or during September 2021, respectively, have been extended so that all of such stock options may be exercised by Gerard M. Jacobs at any time on or before December 31, 2024;

 

(6) We granted to Gerard M. Jacobs and to William C. "Jake" Jacobs so-called "tag along" registration rights for all of our shares owned by Gerard M. Jacobs, by William C. "Jake" Jacobs, or by any of their respective affiliates, and for all of our shares issuable to Gerard M. Jacobs, to William C. "Jake" Jacobs, or to any of their respective affiliates upon the exercise of his or their options or warrants to purchase shares of common stock of Acquired Sales; and

 

(7) We issued to Gerard M. Jacobs and William C. "Jake" Jacobs five-year warrants containing a "cashless exercise" feature giving Gerard M. Jacobs and William C. "Jake" Jacobs (or his designee(s)) the right to purchase 250,000 and 225,000 shares, respectively, of common stock of Acquired Sales exercisable at $5.00 per share.

 

Obligation to Pursue a Hemp Processing System Deal

 

The Merger Agreement obligates us to use good faith efforts to pursue an opportunity in the cannabinoid industry.

 

Nicholas S. Warrender's father, Robert Warrender II, has introduced us to a potential business opportunity to process CBD from hemp using a system that is currently undergoing proof of concept operational testing and that incorporates particular filtration and pump equipment and technology identified by Robert Warrender II. Robert Warrender II believes that this advanced hemp processing system has the potential to allow significantly higher throughput, and lower per unit costs of production. We have agreed to analyze the results of the proof of concept's construction, operating costs, and operating results. If such analysis is favorable and is approved by our Board in its discretion, then we will use good faith efforts to attempt to proceed forward, in a joint venture or other arrangement involving Robert Warrender II, with a project(s) consisting of one or more of such hemp processing systems, subject to various conditions including a capital raise associated therewith, and any equity compensation received by Robert Warrender II from the financing, construction, operation, leasing and/or sale of such project(s) shall be structured in the form of shares of common stock of Acquired Sales valued at the then-current trading price per share of common stock of Acquired Sales but in no event at higher than $5.00 per share of common stock of Acquired Sales.

 

Post-Merger Business

 

We have escrowed $15,000 which is earmarked for the remaining 3% annual dividends on our Series A and Series B convertible preferred stock payable during 2020, and our remaining funds are expected to be sufficient to allow us to pay the post-closing salaries of Gerard M. Jacobs, our CEO, and of William C. "Jake" Jacobs, our President and CFO during 2020, the fees and expenses of our securities lawyer and auditors during 2020, and certain other operational expenses.


23



However, beyond those payments, our available capital is limited. We have not yet paid an aggregate of $350,000 of bonuses which are owed to Gerard M. Jacobs, our CEO, and William C. "Jake" Jacobs, our President and CFO, because we currently do not have the funds to do so. These bonuses are payable upon demand. Also, we do not have available capital to fund further acquisitions.

 

Nevertheless, we still intend to continue post-closing our strategy of acquiring Canna-Infused Products Companies. In order to continue our acquisition strategy, we will need to raise a significant amount of additional capital to pay the cash portion of the consideration paid in our acquisitions, and to inject growth capital into the acquired companies. We anticipate that additional capital will need to be raised in some combination of the following: (1) Private placements of shares of our Series B Convertible Preferred Stock convertible at $5 per share; (2) Private placements of shares of newly declared series of convertible preferred stock convertible at to-be-negotiated price(s) per share, which may be significantly less than the current trading price per share of our common stock, depending upon the financial performance of Lifted, market conditions, and cannabinoid industry conditions; (3) Private placements of newly issued shares of our common stock, at to-be-negotiated price(s) per share, which may be significantly less than the current trading price per share of our common stock, depending upon the financial performance of Lifted, market conditions, and cannabinoid industry conditions; (4) Borrowings from banks or other third parties, which may not be available, or which may be expensive if available at all; (5) Structuring potential acquisitions either as all stock deals, or as a combination of stock plus notes; (6) Using cash flow generated by Lifted's business to pay the cash portion of merger consideration; and/or (7) Merging into Acquired Sales an entity or entities that have cash on hand or cash flow that would allow other acquisitions to be completed.

 

NOTE 3 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation The accompanying financial statements include the accounts and operations of the Company for all periods presented.

 

Consolidated Financial Statements – The accompanying financial statements are consolidated and do not include all disclosures normally required by generally accepted accounting principles. These statements should be read in conjunction with the annual financial statements included in Form 10-K filed with the U.S. Securities and Exchange Commission on March 30, 2020. In particular, the basis of presentation and significant accounting principles were presented in Note 1 to the annual financial statements. In the opinion of management, all adjustments necessary for a fair presentation have been included in the accompanying unaudited consolidated financial statements and consist of only normal recurring adjustments, except as disclosed herein. As part of the consolidation, all significant intercompany transactions are eliminated, and on the Condensed Consolidated Statements of Operations, certain expense categories less than $10,000 are consolidated into the Selling, General and Administrative Expenses category. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020.

 

Use of Estimates – The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) typically requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results and outcomes may differ from management’s estimates and assumptions. Key estimates in these financial statements include the allowance for doubtful accounts, estimated useful lives of property, plant and equipment, valuation allowance on deferred income tax assets and the fair value of stock options.

 

Cash and Cash Equivalents – Cash and cash equivalents as of June 30, 2020 included cash on-hand. The Company considers all highly liquid investments with an original maturity date within 90 days. Cash equivalents are carried at cost. The Company maintains its cash balance at a credit-worthy financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. 

 

Notes Receivable – Notes receivable are classified on the balance sheet based on their maturity date.

 

Fair Value of Financial Instruments – The historical carrying amount of the financial instruments, which principally include cash, trade receivables, historical accounts payable and accrued expenses, approximates fair value due to the relative short maturity of such instruments.

 

Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities 


24



Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quotes prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Accounts Receivable – The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent loss history and an overall assessment of past due trade accounts receivable outstanding. Allowance for bad debt of $13,214 was recorded at June 30, 2020.

 

Inventory – Inventory is valued at the lower of average cost or market value (net realizable value). Inventory consisted of the following at June 30, 2020 and December 31, 2019:

 

 

June 30, 2020

December 31, 2019

Raw Goods

$432,465 

$- 

Finished Goods

$67,572 

$- 

Total Inventory

$500,037 

$- 

 

Monthly overhead costs such as payments for rent, utilities, insurance, and indirect labor are allocated to finished goods based on the estimated percentage cost toward the finished goods.

 

Fixed Assets – Fixed assets are recorded and stated at cost. Typically, fixed assets that cost less than $2,500 are expensed, and fixed assets that cost $2,500 or more are capitalized. Depreciation of machinery and equipment, furniture and fixtures, leasehold improvements, and computer equipment, is based on the asset’s estimated useful life and is calculated using the straight-line method. Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is included in net income.

 

Management regularly reviews property and equipment and other long-lived assets for possible impairment. This review occurs annually, or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If there is indication of impairment, management then prepares an estimate of future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The fair value is estimated using the present value of the future cash flows discounted at a rate commensurate with management’s estimates of the business risks.

 

Preparation of estimated expected future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning expected future conditions. Long-lived assets held for sale are recorded at the lower of their carrying amount or fair value less cost to sell.

 

Security Deposit – The Company has paid a security deposit to its lessor for the Company’s current office, manufacturing and warehouse space.

 

Investments – Under US GAAP, the Company uses the cost method to account for our minority equity ownership interests in businesses in which the Company owns less than 20% of equity ownership, and have no substantial influence over the management of the businesses. Under the cost method of accounting, the Company reports the historical costs of the investments as assets on its balance sheet. However, US GAAP does not permit the consolidation of its financial statements with the financial statements of companies in which the Company owns minority equity ownership interests. US GAAP also requires the Company to record these types of investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As such, the Company will not be allowed to consolidate into its financial statements any portion of the revenues, earnings or assets of companies in which it owns minority equity ownership interests such as Ablis, Bendistillery and Bend Spirits. Moreover, even if there is evidence that the fair market values of the investments have increased above their historical costs, US GAAP does not allow increasing the recorded values of the investments. Under US GAAP, the only adjustments that may be made to the historical costs of the investments are write downs of the values of the investments, which must be made if there is evidence that the fair market values of the investments have declined to below the recorded historical costs.

 

Goodwill


25



Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers.

 

Goodwill is not amortized but is subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

 

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company will perform its annual fair value assessment at December 31, 2020 on the goodwill recognized as part of the acquisition of Lifted.

 

Revenue

 

The Company recognizes revenue in accordance with ASC 606.

 

Revenue Recognition on the Sale of Raw Materials to Customers

 

The Company sells hemp flower, hemp-derived cannabinoids and other raw materials (“Raw Materials”) to various customers. The Company does not offer terms to customers buying Raw Materials. In the majority of sales of Raw Materials to customers, customers are required to pay the full price before receiving the Raw Materials. In some cases, with the sale of large quantities of Raw Materials to customers with whom the Company has established relationships, the Company may allow the customer to pay 50% of the purchase up front, and then, after delivery of the product, the customer is required to pay the remaining 50% of the purchase price.    

 

Revenue Recognition on the Sale of Products to Private Label Clients

 

In the majority of cases, private label clients are required to pay up front for the goods that they order. If the private label client orders more than ten stock keeping units (“SKUs”) in an order, the Company will collect a down payment of at least 50% of the total purchase order, and then will collect the remaining amount upon delivery of the purchased goods.

 

Revenue Recognition on the Sale of Lifted Liquids-Branded Products to Wholesalers, Distributors and End Users

 

The Company sells its own branded products to distributors, which then sell Lifted’s products to vape and smoke shops, CBD stores, convenience stores, health food stores, and other outlets. The Company also sells its own branded products to wholesalers and directly to consumers online.

 

The Company’s revenue is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. Control is generally transferred when the Company’s products are either shipped or delivered based on the terms contained within the underlying contracts or agreements.

 

The Company excludes from revenues all taxes assessed by a governmental authority that are imposed on the sale of its products and collected from customers.


26



Promotional and other allowances (variable consideration) recorded as a reduction to gross sales, primarily include consideration given to the Company’s distributors or retail customers including, but not limited to, discounted products.  

 

The Company’s promotional and other allowance accruals are established during the year for its anticipated liabilities. These accruals require management’s judgment. Differences between such estimated expenses and actual expenses for promotional and other allowance costs are recognized in earnings in the period such differences are determined.

 

Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.

 

Described below are some of the reasons why an end customer may want to return an ordered item, and how the Company responds in each situation:


1) The ordered item breaks in transit to the customer. In this case, the Company will replace the broken item at no cost to the customer.

2) The Company sent the wrong item to the customer. In this case, the Company will allow the customer to keep, at no cost to the customer, the item that was mistakenly sent to the customer. The Company will also send the correct product to the customer, at no cost to the customer.

3) The customer ordered the wrong product. In this case, the customer, at his/her own expense, must mail the mistakenly ordered product back to the Company, and the Company will mail the correct product to the customer.

 

The three scenarios described above do not occur frequently, and occurrences are immaterial.

 

In the event that a wholesaler or distributor wants to return a purchase, the Company will exchange the wholesaler’s or distributor’s purchase for store credit or for items of the same value so long as the purchase is not open or damaged; as such, any difference in sale price is immaterial.

 

Disaggregation of Revenue

 

Nearly all of the Company’s sales occur inside the United States of America.

 

Contract Liabilities

 

Amounts received from a customer before the purchased product is shipped to the customer is treated as deferred revenue. There was deferred revenue of $79,380 at June 30, 2020.

 

Cost of Goods Sold – Cost of goods sold consists of the costs of raw materials utilized in the manufacture of products, direct labor, co-packing fees, repacking fees, freight and shipping charges, as well as internal transfer costs, warehouse expenses incurred prior to the manufacture of Lifted’s finished products and certain quality control costs. Raw materials account for the largest portion of cost of sales. Raw materials include ingredients, product components and packaging materials.

 

Operating Expenses – Operating expenses include payroll, professional fees, advertising and marketing, insurance, utilities, depreciation and other general and administrative costs.

 

Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred income taxes. Deferred income taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and on tax carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided against deferred income tax assets when it is not more likely than not that the deferred income tax assets will be realized.

 

Basic and Diluted Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is determined by dividing earnings (loss) by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per common share is calculated by dividing earnings (loss) by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. When dilutive, the incremental potential common shares issuable upon exercise of stock options and warrants are determined by the treasury stock method. The following table summarizes the calculations of basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2020 and 2019:


27



 

 

For the Three Months Ended

 

 

 

For the Six Months Ended

 

 

June 30,

 

 

 

June 30,

 

 

2020

 

2019

 

 

 

2020

 

2019

Net Loss

 

$ (419,313)  

 

$ (896,815)  

 

Net Loss

 

$ (2,179,939)  

 

$ (941,255)  

Weighted Average Shares Outstanding

 

6,462,070   

 

2,579,648   

 

Weighted Average Shares Outstanding

 

5,387,319   

 

2,492,713   

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Loss per Share

 

$ (0.06)  

 

$ (0.35)  

 

Basic and Diluted Loss per Share

 

$ (0.40)  

 

$ (0.38)  

 

 

At June 30, 2020, there were outstanding options and warrants to purchase 1,586,619 shares of common stock exercisable at between $0.001 and $5.00 per share, (b) rights to purchase warrants to purchase 2,625,000 shares of common stock exercisable at between $0.01 and $1.85 per share, (c) financing warrants to purchase 31,250 shares of common stock exercisable at $0.03 per share, (d) warrants to purchase 475,000 shares of common stock at $5.00 per share, and (e) warrants to purchase 1,820,000 shares of common stock at $5.00 per share. As of the date of this report, none of these outstanding options, rights to purchase warrants or financing warrants have been exercised into shares of common stock. However, all of them may be exercised at any time in the sole discretion of the holder except for certain rights to purchase warrants to purchase 1.25 million shares of our common stock, which are not exercisable until a performance contingency is met, and except for 745,000 of the 1,820,000 warrants exercisable at $5.00 per share which are not yet vested and subject to certain performance contingencies. Also outstanding at June 30, 2020 was Series A Preferred Stock outstanding convertible into 6,615,000 shares of common stock. In addition, the Company has accepted subscriptions from four accredited investors to purchase 100,000 shares of Series B Preferred Stock for an aggregate purchase price of $500,000 in cash, convertible at the option of the holder into 100,000 shares of newly issued common stock of the Company, or $5.00 per share of common stock of the Company. None of these are including in the diluted earnings calculation, given they are considered antidilutive.

 

In comparison, at June 30, 2019, there were (a) outstanding options and warrants to purchase 1,176,698 shares of common stock exercisable at between $0.001 and $2.00 per share, (b) rights to purchase warrants to purchase 2,740,000 shares of common stock exercisable at between $0.01 and $1.85 per share, (c) financing warrants to purchase 56,250 shares of common stock exercisable at $0.03 per share, and (d) warrants to purchase 410,942 shares of common stock exercisable at $1 per share. As of the date of this report, a warrant holder delivered to the Company his notice of exercise of his warrant to purchase 7,021 shares of common stock of the Company for a purchase price of $7,021, and all of the others may be exercised at any time in the sole discretion of the holder except for certain rights to purchase warrants to purchase 1.25 million shares of our commons stock, which are not exercisable until a performance contingency is met. Also outstanding at June 30, 2019 were 66,150 shares of Series A Preferred Stock, convertible into 6,615,000 shares of the Company’s common stock at an exercise price of $1.00 per common stock share, pursuant to the Series A Preferred Stock’s voluntary conversion rights. All of these options, rights to purchase warrants to purchase shares of common stock, financing warrants and Series A Preferred Stock shares were excluded from the computation of diluted earnings (loss) per share because their effect would be anti-dilutive.

 

Recent Accounting Pronouncements – In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (codified as Accounting Standards Codification (“ASC”) Topic 326). ASC 326 adds to US GAAP the current expected credit loss model, a measurement model based on expected losses rather than incurred losses. Under this new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022, though early adoption is permitted. The Company believes the adoption will modify the way the Company analyzes financial instruments. The Company is currently evaluating the impact of ASU 2016-13 on its consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes, eliminates certain exceptions to the general principles in Topic 740 and clarifies certain aspects of the current guidance to improve consistent application among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021 and interim periods within annual periods beginning after December 15, 2022, though early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal Use Software (Subtopic 250-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a


28



service contract with the requirements for capitalizing implementation costs for internal-use software. The accounting for any hosting contract is unchanged. ASU 2018-15 is effective on January 1, 2020 with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements.

 

Advertising and Marketing Expenses – Advertising costs are expensed as incurred. During the three and six months ended June 30, 2020, the Company incurred $53,922 and $66,048 in advertising and marketing expenses, of which were primarily public relations and digital marketing. During the three and six months ended June 30, 2019, the Company incurred $464 and $1,384 in advertising and marketing expenses, respectively.

 

Compensated Absences – Paid time off (“PTO”) is provided to employees and subcontractors that obtain approval for it from Nicholas S. Warrender, CEO of Lifted. Any approved PTO is granted at Mr. Warrender’s discretion, and mandatory PTO is zero days, thus no accrual is necessary.

 

Off Balance Sheet Arrangements – The Company has no off balance sheet arrangements.

 

Reclassifications – Some items from the prior period have been reclassified within the financial statements to conform with the current presentation.

 

NOTE 4 – RISKS AND UNCERTAINTIES

 

Going Concern – The COVID-19 pandemic and its ramifications, combined with the expenses and potential liabilities associated with litigation involving Lifted, combined with the regulatory risks and uncertainties associated with the e-liquids and cannabinoid-infused products industries, combined with the risks associated with internet hacking or sabotage, combined with the risks of employee and/or independent contractor disloyalty or theft of Company information and opportunities, have created significant adverse risks to the Company, which have caused substantial doubt about the Company’s ability to continue as a going concern. Also, the Company has Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year. Also, the Company has not yet paid an aggregate of $350,000 of bonuses owed to its CEO Gerard M. Jacobs, and William C. "Jake" Jacobs, President and CFO, because it currently does not have the funds to do so. These bonuses are due and payable upon demand. In addition, factors that could materially affect future operating results include, but are not limited to, changes to laws and regulations, especially those related to vaping, vendor concentration risk, customer concentration risk, customer credit risk, and counterparty risk. The Company maintains levels of cash in a bank deposit account that, at times, may exceed federally insured limits. The Company has not experienced any losses in such account and it believes it is not exposed to any significant credit risk on cash.

 

No assurance or guarantee whatsoever can be given that the net income of the Company’s wholly-owned subsidiary Lifted Made will be sufficient to allow the Company to pay all of its operating expenses and the dividends accruing on the Company’s preferred stock. As a result, there is substantial doubt that the Company will be able to continue as a going concern. Bankruptcy of the Company at some point in the future is a possibility. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company currently has one revenue-generating subsidiary, Lifted Made. If and to the extent that the revenue generated by Lifted Made is not adequate to pay the Company’s operating expenses and the dividends accruing on its preferred stock, then Management plans to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing additional profitable businesses that will create positive income from operations; and/or (2) completing private placements of the Company’s common stock and/or preferred stock. Management believes that by taking these actions, the Company will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees whatsoever that the Company will be successful in consummating such actions on acceptable terms, if at all. Moreover, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company.

 

Concentration of Credit Risks – During the quarter ended June 30, 2020, one customer made up approximately 56% of Lifted’s sales, another customer made up approximately 29% of Lifted’s sales, and another customer made up approximately 19% of Lifted’s sales. During the period February 24, 2020 through June 30, 2020, one customer made up approximately 43% of Lifted’s sales, and another customer made up approximately 22% of Lifted’s sales, and a last customer made up approximately 15% of Lifted’s sales. Regarding the purchases of raw goods and finished goods (“Supplies”), during the quarter ended June 30, 2020, approximately 47% of the Supplies that Lifted purchased were from one vendor, and approximately 20% of the purchased Supplies were from another vendor. During the period February 24, 2020 through June 30, 2020, approximately 36% of the Supplies that Lifted purchased were from one vendor, and approximately 17% of the purchased Supplies were from another vendor. The loss of Lifted’s relationships with these vendors and customers could have a material adverse effect on Lifted’s business.

 

NOTE 5 – THE COMPANY’S INVESTMENTS IN ABLIS, BENDISTILLERY AND BEND SPIRITS

 

On April 30, 2019, the Company purchased 4.99% of the common stock of each of Ablis Holding Company, Bendistillery Inc., and Bend Spirits, Inc. for an aggregate purchase price of $1,896,200. The Company’s investments in Ablis, Bendistillery and Bend


29



Spirits made the Company a minority owner of these companies. As a minority owner, the Company will not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in the Company’s financial statements.

 

Pursuant to US GAAP, the Company is obligated to periodically review its investments in Ablis, Bendistillery and Bend Spirits. During the fourth quarter of each year, the Company typically obtains the financial statements of Ablis, Bendistillery and Bend Spirits, which typically have been reviewed by a third party accounting firm, and the Company performs an annual impairment assessment. The Company’s investments are valued at cost less impairment, pursuant to ASC 321. The reviewed financial statements of these companies are not audited, the Company is not active in the management of these companies, and except for these companies’ annual meeting of its Board of Directors, the Company’s assessment of these companies is inherently limited to infrequent and relatively brief conversations with officers of these companies and to reviews of those reviewed financial statements.

 

NOTE 6 – PROPERTY AND EQUIPMENT, NET

 

Property and Equipment consist of the following:

 

Asset Class

 

June 30, 2020

December 31, 2019

Machinery & Equipment

 

$85,350  

$- 

Leasehold Improvements

 

$26,089  

$- 

Sub-total:

 

$111,439  

$- 

 

 

 

 

Less: accumulated depreciation

 

$(4,858) 

$- 

 

 

$106,581  

$- 

 

Estimated useful lives per asset class are:

 

Asset Class

Estimated Useful Life

 

Machinery & Equipment

120 months

 

Leasehold Improvements

48 months

 

 

 

Depreciation expense of $3,754 was recognized during the three months ended June 30, 2020. Depreciation expense of $5,492 was recognized during the period February 24, 2020 through June 30, 2020. During the quarter, $54,507 of previously capitalized property and equipment was written off, expensed through the account Warehouse and Lab Expense.  

 

NOTE 7 – NOTES RECEIVABLE

 

CBD Lion LLC

 

On August 8, 2019, the Company made an unsecured $300,000 loan to Lion (the “Loan”) evidenced by a promissory note (the “Note”) in connection with the proposed Merger Agreement with Lion. Per the terms of the Note, if the Transaction did not close and the merger agreement were terminated, then the Loan was to be repaid by Lion to the Company in six equal monthly installments of principal, together with accrued interest at the rate of 6% per year, with the first such installment due and payable by Lion to the Company on the first day of the first calendar month following the termination of the merger agreement. The Merger Agreement was terminated by the Company on November 14, 2019 and the Note became payable. During December 2019, the principal of the Note was repaid by Lion down to $200,000, and Lion also paid the accrued interest on the Note of $6,945.

 

Due to termination of the Merger Agreement, and per Section 5.15(b) of the Merger Agreement, as of December 31, 2019 the Company owed CBD Lion $31,500 for reimbursement of professional fees related to the audit of CBD Lion.

 

This left Lion with a net balance owed to the Company of $168,500 as of December 31, 2019. On March 2, 2020, Lion and the Company agreed that the repayment of such $168,500 will be made in eleven equal monthly installments of principal due and payable by Lion to the Company on the first day of each calendar month starting on April 1, 2020, and that no additional interest will accrue. During the quarter ended March 31, 2020, The Company wrote off as bad debt interest of $2,006 that was receivable from the CBD Lion for the period January 1, 2020 through March 1, 2020. The Company calculated imputed interest receivable of $838 from CBD Lion for the period March 2, 2020 through June 30, 2020.

 

The William Noyes Webster Foundation, Inc.

 

The Foundation, a non-profit Massachusetts corporation, has received a provisional registration from the Commonwealth of Massachusetts to own and operate a medical marijuana cultivation facility in Plymouth, Massachusetts, and a medical marijuana


30



dispensary in Dennis, Massachusetts. Jane W. Heatley (“Heatley”) is the founder and a member of the board of directors of the Foundation.

 

Teaming Agreement – The Company believes it is highly likely that the board of directors of the Foundation will only approve contracts that have been negotiated and approved by Heatley. Consequently, on July 8, 2014, the Company entered into a Teaming Agreement (the "Teaming Agreement") with Heatley, in which, among other things: (1) the Company and Heatley agreed to use their respective best efforts, working exclusively together as a team, and not as a partnership or other entity, in order to consummate transactions, agreements, contracts or other arrangements pursuant to which the Company will provide capital and expertise to the Foundation; and (2) Heatley agreed that Heatley shall not, and shall not permit the Foundation to, discuss or negotiate for debt or equity financing, or consulting services or other expertise, from any third party. The Company claims that Heatley violated the Teaming Agreement by discussing and negotiating for debt or equity financing, or consulting services or other expertise, from at least one third party. Heatley claims that the Company violated the Teaming Agreement alleging that the Company failed to lend funds to the Foundation in accordance with the Teaming Agreement. The Company believes Heatley's claim to be baseless. No assurances whatsoever can be made that Heatley will comply with the terms of the Teaming Agreement, nor that the Company will be able to adequately enforce the terms of the Teaming Agreement if it is ever the subject of litigation.

 

Promissory Note – On July 14, 2014, the Foundation signed and delivered to the Company a Secured Promissory Note (the "Note") which is in the stated loan amount of $1,500,000, and is secured by a Security Agreement of even date therewith (the “Security Agreement”). The Note provides that the $1,500,000 loan may be advanced in one or more installments as the Foundation and the Company may mutually agree upon. The Foundation and the Company mutually agreed that the first installment of this loan would be $602,500. Pursuant to instructions from the Foundation, on July 14, 2014, the Company paid $2,500 owed by the Foundation to one of its consultants, and the Company advanced $600,000 directly to the Foundation. The amount and timing of subsequent loan installments under the Note, which could have totaled $897,500, had not yet been mutually agreed upon between the Foundation and the Company as of the date of the Note.

 

Between April and July 2015, the Company loaned an additional $135,350 to the Foundation, evidenced by the Note and secured by the Security Agreement. Following such additional loans, the principal of the loan from the Company to the Foundation, evidenced by the Note and secured by the Security Agreement, is now $737,850. The principal balance outstanding under the Note bore interest at the rate of 12.5% per annum, compounded monthly. It was contemplated that the first payment of accrued interest by the Foundation under the Note would be made as soon after the Foundation commences operations of the Plymouth Cultivation Facility and the Dennis Dispensary as the Foundation's cash flows shall reasonably permit, but in any event no later than one year after the Foundation commences operations. The principal of the Note would be payable in eight consecutive equal quarterly installments, commencing on the last day of the calendar quarter in which the Foundation commences operations. Principal on the Note and related accrued interest would be considered past due if the aforementioned payments were not received by their due dates.

 

Uncollectable Note and Interest Receivable – The Company assessed the collectability of the Note based on the adequacy of the Foundation’s collateral and the Foundation’s capability of repaying the Note according to its terms. Based on this assessment, on September 1, 2015, the Company concluded that Note and interest receivable would not be collectible. As such, the Company wrote off the Note totaling $737,850 and interest receivable totaling $97,427 as bad debt expense on September 1, 2015.

 

NOTE 8 – INTANGIBLE ASSETS, NET

 

www.LiftedMade.com Website – The cost of developing Lifted’s website, www.LiftedMade.com, is being amortized over 32 months, and $556 in amortization related to the website was recognized between February 24, 2020 (the date of the Merger) through June 30, 2020.

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

Commissions Paid

 

Robert Warrender

 

During the six months ended June 30, 2020, $3,777 in commissions were paid to Robert Warrender, who is Nicholas S. Warrender’s brother. In 2019, $34,972 in commissions were paid to Robert Warrender.

 

Vincent J. Mesolella

 

During the six months ended June 30, 2020, $172 in commissions were paid to Vincent J. Mesolella, who is Acquired Sales Corp.’s lead outside director.

 

Shipping Costs – Lifted shares a shipping account with a company operated by Nicholas S. Warrender’s father. Lifted does this in an effort to reduce shipping costs, as the shipper gives a price discount based on volume. The cost of shipping Lifted’s products are paid for by Nicholas S. Warrender’s father’s company, and Lifted reimburses Nicholas S. Warrender’s father’s company.


31



Amounts Owed to Related Parties

 

Amounts Owed to GJacobs

 

At June 30, 2020, there was a management bonus payable of $250,000 owed to the Company's CEO GJacobs; there were no other payables owed to GJacobs. In comparison, at June 30, 2019, there were expense reimbursements owed to GJacobs totaling $3,555, and there were also consulting fees of $7,500 payable to GJacobs.

 

Amounts Owed to WJacobs

 

At June 30, 2020, there was a management bonus payable of $100,000 owed to WJacobs; there were no other payables owed to WJacobs. In comparison, at June 30, 2019, there were expense reimbursements of $8,015 owed to WJacobs.

 

Amounts Owed to Nicholas S. Warrender

 

On February 24, 2020 we closed on the acquisition of 100% of the ownership of CBD-infused products maker Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) of Zion, Illinois (the “Merger”), for consideration of (1) $3,750,000 in cash, (2) $3,750,000 in the form of a secured promissory note, (3) 3,900,455 shares of unregistered common stock of the Company (the "Stock Consideration"), (4) 645,000 shares of unregistered common stock of the Company that constitute deferred contingent compensation to be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Deferred Contingent Stock"), and (5) warrants to purchase an aggregate of 1,820,000 shares of unregistered common stock of the Company at an exercise price of $5.00 per share that will be issued and delivered to certain persons specified by Nicholas S. Warrender in a schedule delivered by Nicholas S. Warrender to the Company at the closing of the Merger (the "Warrants").

 

As such, as of June 30, 2020, in addition to the Promissory Note of $3,750,000 owed to Nicholas S. Warrender, there was also related interest payable of $26,301 owed to Nicholas S. Warrender.

 

NOTE 10 – DISTRIBUTIONS TO NICHOLAS S. WARRENDER

 

Distributions to Nicholas S. Warrender to Cover the Income Taxes Owed by Nicholas S. Warrender in Regard to the Net Income of Lifted Prior to February 24, 2020

 

Pursuant to Section 5.11 of the Agreement and Plan of Merger by and among the Company, Lifted, Gerard M. Jacobs, William C. Jacobs, Warrender Enterprise Inc. and Nicholas S. Warrender dated January 7, 2020, certain Estimated Tax Distributions were to be made to Nicholas S. Warrender to cover estimated income tax obligations of Nicholas S. Warrender in regard to the net income of Warrender Enterprise Inc. during 2019 and during the short taxable year commencing on January 1, 2020 and ending on February 23, 2020, the date before the closing date of the Merger. The parties orally agreed that these Estimated Tax Distributions would be made to Nicholas S. Warrender as promptly as feasible following the closing date. On March 6, 2020, Lifted distributed a total of $193,767 of Estimated Tax Distributions based upon good faith estimates of such federal and state income tax obligations of Nicholas S. Warrender calculated by a third party tax preparation firm.

 

NOTE 11 – SHAREHOLDERS’ EQUITY

 

Cancellation of Shares of Common Stock – Several years ago, pursuant to a fully signed settlement agreement (the "Settlement Agreement"), the Company purchased for $50,000 (the "Purchase") all of the shares of the Company’s common stock (the "Shares") owned by Matthew Ghourdjian ("Ghourdjian") and by the Deborah Sue Ghourdjian Separate Property Trust ("Ghourdjian Trust").

 

Prior to the closing of the Purchase, Ghourdjian and the Ghourdjian Trust orally expressed uncertainty as to whether or not certain of the Shares totaling 166,888 shares (the "166,888 Shares") had already been orally sold by Ghourdjian and the Ghourdjian Trust to a third party. With Ghourdjian and the Ghourdjian Trust being unable to find any evidence of such a sale of the 166,888 Shares but also being unable to locate the physical stock certificates evidencing the 166,888 Shares, the Settlement Agreement was written so that the Company purchased from Ghourdjian and the Ghourdjian Trust all of the Shares owned by Ghourdjian or by the Ghourdjian Trust, and stipulated that the aggregate number of the Shares without the 166,888 Shares was a minimum of 690,796 shares (the "690,796 Shares").

 

At the closing of the Purchase, the Company paid $50,000 for the Shares and Ghourdjian and the Ghourdjian Trust delivered to the Company certificates evidencing the 690,796 Shares.

 

The 166,888 Shares continued to be shown on the books of Colonial Stock Transfer ("Colonial") as being owned by Ghourdjian and the Ghourdjian Trust. On April 2, 2020 the 166,888 Shares were cancelled.


32



Issuance of Preferred Stock – The Company has authorized 400,000 shares of its Preferred Stock. Each share of Preferred Stock may be converted into 100 shares of common stock. The Preferred Stock pays dividends at the rate of 3% annually. The Preferred Stock dividends are cumulative if the Company does not have the necessary cash to pay the dividend when due. The Preferred Stock dividends shall cease to accrue at such time as the Company’s Common Stock has closed at $3.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 25,000 shares traded on each of those 20 consecutive trading days. The Preferred Stock have no voting rights. The holders of the

Preferred Stock shall have voluntary conversion rights. Shares of Preferred Stock are subject to mandatory conversion (in the discretion of the Company) at such time as the Company’s common stock has closed at $5.00 per share or higher for 20 consecutive trading days after the first date that the registration statement is effective, and there have been, on average, at least 50,000 shares traded on each of those 20 consecutive trading days.   

 

Between February 27, 2019 and May 13, 2019, the Company accepted subscriptions from accredited investors to purchase 66,150 shares of newly issued Preferred Stock for an aggregate purchase price of $6,615,000 in cash. These 66,150 shares of Preferred Stock are convertible at the option of the holders into 6,615,000 shares of newly issued common stock of the Company, or $1.00 per share of common stock of the Company. The Company has committed to file a registration statement covering the shares of newly issued common stock of the Company into which the Preferred Stock can be converted (the "Registration Statement"). The Preferred Stock will receive an annual dividend, and will be subject to mandatory conversion, under terms and conditions set forth in the Certificate of Designation of the Preferred Stock.

 

Convertible Preferred Stock Dividends Paid and Accrued

 

At June 30, 2020, the Company recognized dividends payable of $45,521 to the to the Series A Convertible Preferred Stock holders and dividends payable of $13,221 payable to the Series B Convertible Preferred Stock holders. During the six months ended June 30, 2020, a total of $198,450 of cash dividends were paid to the Series A Convertible Preferred Stock holders and Series B Convertible Preferred Stock holders.

 

Share-Based Compensation – During the six months ended June 30, 2020, the Company recognized $733,530 in share-based compensation related to the issuance of warrants to GJacobs. The Company also recognized $660,177 in share-based compensation related to the issuance of warrants to WJacobs. These warrants were issued to GJacobs and WJacobs pursuant to the June 19, 2019 Compensation Agreement, which authorized the issuance of certain warrants to GJacobs and WJacobs upon the execution of employment agreements, which were signed on February 24, 2020 upon the closing of the acquisition of Lifted. The five-year warrants give GJacobs the right to purchase 250,000 shares of common stock of AQSP exercisable at $5.00 per share. The five-year warrants give WJacobs the right to purchase 225,000 shares of common stock of AQSP exercisable at $5.00 per share. The warrants were valued using the Black-Scholes valuation model as of the date of issuance, assuming an estimated life of 2.5 years and estimated future volatility of 361.49%.

 

During the quarter ended June 30, 2019, the Company recognized total stock compensation expense of $834,186. Of this total, $793,478 related to the value of 396,900 warrants to purchase unregistered shares of common stock of the Company, for the capital raised for the Company by brokers. The difference, $40,708, was the value of a total of 14,042 warrants to purchase unregistered shares of common stock of the Company, issued to two finders (7,021 warrants were issued to each finder) in regard to the purchase of 4.99% of the stock of Ablis.

 

Stock Option and Warrant Activity The following is a summary of stock option and warrant activity as of June 30, 2020 and changes during the period then ended:


33



 

 

 

Weighted-Average

Aggregate

 

 

Weighted-Average

Remaining Contractual

Intrinsic

 

Shares

Exercise Price

Term (Years)

Value

Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, December 31, 2019

2,992,869 (1)

$ 0.97   

3.47   

$ 4,570,144   

 

Warrants to Purchase Common Stock Issued in the Lifted Made merger during Q1 2020 (Currently Exercisable)

 

Warrants to Purchase Common Stock Issued in the Lifted Made merger during Q1 2020 (not Currently Exercisable)

 

 

1,075,000 (1)

 

 

 

 

 

745,000

 

 

 

Warrants Issued to GJacobs and WJacobs during Q1 2020 (Currently Exercisable)

475,000 (1)

 

 

 

Exercisable Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants Outstanding, June 30, 2020

Sum of (1) s= 4,542,869

$ 2.35   

4.41   

$ 2,462,750   

Outstanding Options, Rights to Purchase Warrants to Purchase Common Stock and Financing Warrants, June 30, 2020

6,537,869

$ 2.56   

4.46   

$ 2,462,750   

 

Upon the execution of GJacobs’ employment agreement on February 24, 2020, the terms of GJacobs’ stock options granted by the Company to purchase shares of common stock of the Company which were set to expire on November 4, 2020 and September 29, 2021 were extended so that all of such stock options may be exercised by GJacobs at any time on or before December 31, 2024. GJacobs owns 471,698 options that were originally set to expire on November 4, 2020, and 605,000 options that were originally to expire on September 29, 2021; the expiration dates for all of these options were extended to December 31, 2024.

 

NOTE 12 – CONTINGENT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

 

Operating Lease Right-of-Use Asset – In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”). The amended guidance, which is effective for the Company on January 1, 2019, requires the recognition of lease assets and lease liabilities on the balance sheet for those leases with terms in excess of 12 months and currently classified as operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet; lease expense for these types of leases are recognized on a straight-line basis over the lease term. Options to extend or terminate a lease are not included in the determination of the right-of-use asset or lease liability unless it is reasonably certain to be exercised. Lifted adopted ASU 2016-02 using the modified retrospective approach, electing the package of practical expedients.

 

Lifted does not own any physical properties. Lifted’s corporate office, manufacturing facility and warehouse is located in Zion, Illinois, where Lifted has rented 3,300 square feet of space under a lease that terminates in June 2021. Lifted is currently temporarily using additional space located adjacent to its rented space and is making payments in lieu of rent therefor.

 

As the Company's lease does not provide an implicit rate, the Company used an incremental borrowing rate based on the information provided by a banker in determining the present value of lease payments. The discount rate used in the computations was 5.5%.

 

Balance Sheet Classification of Operating Lease Assets and Liabilities

 

Asset

 

 

Balance Sheet Line

 

June 30, 2020

Operating Lease Right-of-Use Asset

 

Non-Current Assets

 

$16,988 

 

 

 

 

 

 

 

 

Liability

 

 

Balance Sheet Line

 

June 30, 2020

Current Operating Lease Liability

 

Current Liabilities

 

$16,911 

 

Lease Cost

 

The table below summarizes the components of lease costs for the period ended June 30, 2020. 

 

 

 

 

 

 

 

 

June 30, 2020

Operating lease costs for April-June 2020. Please note: as described in Note 2, a portion of monthly overhead costs such as this rent are allocated to finished goods. Utility costs such as this rent are included in the total Selling, General and Administrative Expenses account.

$

4,800

 

 

 

 

 

 

 

 

Maturities of lease liabilities as of June 30, 2020 are as follows:

 

 

 

 

 

 

 

 

 

 

Remaining lease payments in 2020

 

 

 

$

9,600

Less: Interest for remaining 2020 fiscal year

 

 

$

(317)

Present value of lease liabilities

 

 

 

$

9,283

 

Processing Services Agreement Between the Company and Merkabah Labs LLC – On May 9, 2019, Lifted entered into a one year Processing Services Agreement with Merkabah Labs, LLC ("Merkabah Labs"). Pursuant to such Processing Services Agreement, among other things, Merkabah Labs agreed to produce and sell a water soluble CBD nano product to Lifted, and so long as Lifted was not in breach of certain specified minimum quantity purchase requirements, Lifted shall be Merkabah Labs' exclusive supplier of such product for the duration of the Processing Services Agreement. In addition, among other things, Lifted and Merkabah Labs each agreed in such Processing Services Agreement not to disclose, directly or indirectly, to any person or entity the other party's confidential information, and the receiving party agreed that is shall not use the other party's confidential information for its private benefit, but only in furtherance of the purposes of such Processing Services Agreement. Lifted has filed a lawsuit against Merkabah Labs, its majority owner Ryan Puddy, Merkabah Technologies, LLC, and Ralph L. Taylor III (collectively, the "defendants") alleging, among other things: that the defendants' orchestrated and deliberately misappropriated Lifted's confidential business, proprietary, and trade secret information, in breach of contract and breach of fiduciary duties; that the defendants wrongfully acquired, disclosed, and used Lifted's information through unauthorized access to Lifted's internal email communications and other improper means in violation of federal, state and common law; that defendants consciously conspired and deliberately pursued a fraudulent and malicious scheme to pick apart Lifted's business from within and steal Lifted's confidential business, proprietary, and trade secret information to further their own economic or corporate interests, to the detriment of Lifted; and that defendants knowingly benefitted from their colluded misappropriation of Lifted's confidential business, proprietary, and trade secret information, and unfair competition enabling defendants to quickly create a competing company using Lifted's resources and personnel and reap the associated awards in the marketplace without contributing or expending any of their own time, money, resources, knowledge or experience.

 

Payment of Finders’ Fees Related to Ablis

 

The Company has agreed to pay finders’ fees to two finders in regard to the potential purchase of an additional 15% of the stock of Ablis. The Company has agreed to pay those two finders additional warrants to purchase shares of common stock of the Company at an exercise price of $1 per share exercisable at any time on or before April 30, 2024; in the event that the Company closes on the purchase of up to an additional 15% of the common stock of Ablis, then the total amount of such warrants will be 2,814 unregistered shares of common stock of AQSP at an exercise price of $1 per share for each additional one percent of Ablis’ common stock so purchased (a maximum issuance of warrants to purchase an aggregate of 42,210 unregistered shares of common stock of the Company at an exercise price of $1 per share).

 

Previously, on April 30, 2019, the Company issued warrants to purchase 14,042 unregistered shares of common stock of the Company, issued to the two finders (7,021 warrants were issued to each finder) in regard to the purchase of 4.99% of the stock of Ablis. Using the Black-Scholes valuation model, these warrants were valued and expensed as being worth $40,708.

 

Payment of Brokers’ Fees Related to the Sale of Preferred Stock

 

The Company has committed to pay brokers’ fees in regard to the capital being raised for the Company by such brokers in the Company’s private placements of preferred stock, such fee to consist of warrants to purchase unregistered shares of common stock of the Company at an exercise price equal to the conversion price per share of such preferred stock, exercisable at any time during a


34



five year period; the number of such shares will be calculated as six percent of the aggregate capital raised by such brokers in the private placement of preferred stock divided by the conversion price per share of such preferred stock.

 

In 2019, warrants to purchase 402,900 unregistered shares of common stock of the Company were issued to these brokers. Using the Black-Scholes valuation model, these warrants were valued and expensed as being worth $833,446.

 

Potential Issuance of Warrants to Purchase Shares of Common Stock of the Company

 

The Compensation Committee of the Company's Board of Directors may, from time to time, recommend that certain warrants to purchase shares of common stock of the Company should be issued to new or current members of the Company’s Board of Directors, to officers and employees of the Company and its subsidiaries, or to members of any advisory board or consultants to the Company.

 

Amounts Payable to Gerard M. Jacobs and William C. Jacobs

 

Gerard M. Jacobs has not historically received cash compensation, and, historically, the Company’s President and CFO William C. “Jake” Jacobs has worked for $5,000 per month. Effective as of June 19, 2019 through the earlier of the closing of the Company’s acquisition of CBD Lion LLC, which is now terminated or the closing of the Company’s acquisition of Warrender Enterprise Inc. d/b/a Lifted Made (formerly d/b/a Lifted Liquids) (“Lifted”), the Company has agreed to pay Gerard M. Jacobs and William C. “Jake” Jacobs consulting fees of $7,500 and $5,000 per month, respectively. In addition, upon the closing of the acquisition described herein, their salaries, equity incentives, expense reimbursements and bonuses will increase. There are also to be significant bonuses awarded to Gerard M. Jacobs and William C. “Jake” Jacobs for closing on the acquisition of Lifted, and upon the earlier of December 1, 2020 or the first date when the Company has raised a total of at least $15 million, and upon the earlier of December 1, 2021 or the first date when the Company has raised a total of at least $25 million, as described in the current report on Form 8-K, and its exhibit, filed with the SEC on or about June 25, 2019. Please note that as of December 31, 2019, the Company had not yet closed on its acquisition of Lifted, and the Company had not raised $15 million and $25 million, so no accruals for the bonuses triggered by these events had been made. As of April 23, 2020, the Company has closed on the acquisition of Lifted, and the bonuses triggered by the acquisition of Lifted have been accrued for but have not yet been paid. As of the date of this report on Form 10-Q, the Company has not yet raised $15 million or $25 million.

 

Commissions on Sales

 

Lifted has agreed to pay up to 7% commissions to certain individuals, some of whom are affiliated with the Company and some of whom are relatives of affiliates of the Company, in connection with certain sales of Lifted’s products. Commissions are based upon the total purchase prices paid by the referrers’ customers, excluding shipping costs and any governmentally imposed taxes and fees, all of which must be paid by the referrers’ customers. Some of these agreements extend through December 31, 2040, and one extends through December 31, 2025. Commissions are paid on each purchase order of Lifted products received from and paid for by the referrers’ customers. In the Condensed Consolidated Statements of Operations, these commissions are included in the “Payroll, Consulting and Independent Contractor” totals.

 

As mentioned in NOTE 9 – RELATED PARTY TRANSACTIONS, during the six months ended June 30, 2020, $172 in commissions were paid to Vincent J. Mesolella, who is Acquired Sales Corp.’s lead outside director.

 

 

NOTE 13 – LEGAL PROCEEDINGS

 

The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Except for income tax contingencies, the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.

 

Lifted currently is involved in three pending lawsuits, two as the plaintiff and one as the defendant:

 

(a)Warrender Enterprise, Inc. d/b/a Lifted Liquids, a Wisconsin corporation, Plaintiff, v. Merkabah Labs, LLC, a Colorado limited liability company; Merkabah Technologies, LLC, a Colorado limited liability company; Ryan Puddy, an individual; and Ralph L. Taylor III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC) In January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and former Lifted representative Ralph L. Taylor III in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by Merkabah Labs, LLC and Ralph L. Taylor III. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit. 


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(b)Martha, Edgar v. Lifted Liquids – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage. 

(c)Lifted Liquids, Inc., Plaintiff, v. Luxvoni LLC d/b/a Luxvoni Marketing Solutions; Does I through X, inclusive; and Roe Business Entities I through X, inclusive, Defendants (United States District Court for Clark County, Nevada; Civil Case No. A-20-817416-C) On July 1, 2020, Lifted filed a lawsuit against Luxvoni LLC d/b/a Luxvoni Marketing Solutions (“Luxvoni”) in regard to Luxvoni’s money back guarantee of a $25,000 upfront fee paid by Lifted to Luxvoni for digital marketing services which were never provided to Lifted. 

 

During June 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following two lawsuits:

(1)Mile High Labs, Inc., Plaintiff, v. Warrender Enterprise, Inc. d/b/a Lifted Liquids, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW); and 

(2)Accelerated Analytical, Inc., et al. v. Lifted Liquids, Inc. d/b/a Lifted Made, et al., Case No. 3:20-cv-442-wmc (United States District Court for the Western District of Wisconsin). 

 

NOTE 14 – SUBSEQUENT EVENTS

 

Lifted believes that having a reliable source of supply of delta-8-THC and delta-9-THC products is important to Lifted’s business. During June 2020, Lifted signed a contract which grants to Lifted an exclusive right (but not the obligation) to purchase certain delta-8-THC and delta-9-THC products from a lab in the Midwest, provided that such exclusivity shall continue only in the event that Lifted purchases from such lab an aggregate of at least $100,000 of product during 2020, and an aggregate of at least $250,000 of product during 2021 and each subsequent year thereafter.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

As used in this Form 10-Q, references to the “Company,” “Acquired Sales,” “AQSP,” “we,” “our” or “us” refer to Acquired Sales Corp. and Lifted, unless the context otherwise indicates.

 

IMPACTS OF COVID-19

 

THE COVID-19 SITUATION AND ITS RAMIFICATIONS, INCLUDING ILLINOIS GOVERNOR J.B. PRITZKER’S STAY AT HOME ORDER, HAS MATERIALLY ADVERSELY AFFECTED THE COMPANY’S ABILITY TO FUNCTION AS IT NORMALLY DOES WITH MANY EMPLOYEES WORKING REMOTELY AND SUPPLY AND DISTRIBUTION CHANNELS SERIOUSLY DISRUPTED. THE COMPANY HAS EXPERIENCED LOSS OF REVENUE IN REGARD TO ITS ANTICIPATED CANNA-INFUSED PRODUCTS BUSINESS. NO ASSURANCES OR GUARANTEES WHATSOEVER CAN BE GIVEN THAT THE COMPANY’S CANNA-INFUSED PRODUCTS BUSINESS WILL EVER RETURN TO NORMAL. THE COMPANY IS NOT CURRENTLY IN A POSITION TO FULLY ASSESS THE IMPACTS OF THE COVID-19 SITUATION AND ITS RAMIFICATIONS, INCLUDING ILLINOIS GOVERNOR J.B. PRITZKER’S STAY AT HOME ORDER, ON THE COMPANY’S FUTURE SALES AND PROFITABILITY. IN ADDITION, THE COMPANY CURRENTLY BELIEVES THAT THE COVID-19 SITUATION AND ITS RAMIFICATIONS, INCLUDING ILLINOIS GOVERNOR J.B. PRITZKER’S STAY AT HOME ORDER, ARE HAVING A MATERIAL ADVERSE IMPACT ON THE COMPANY’S SUPPLY AND PACKAGING, DISTRIBUTION CHANNELS, SALES, CAPITAL RAISING, ACQUISITION OPPORTUNITIES, AND OTHER FUTURE PROSPECTS.

 

The funding totaling $159,622.50 that the Company has received from the SBA has provided the Company with additional liquidity, and the Company has been able to offset some of its lost revenue through the sale of hand sanitizer. Very recently, the Company has seen some increases in the sale of hand sanitizer and its initial sales of hemp-derived delta-8-THC. The Company is not currently in a position to fully assess how long such liquidity and the revenue from the sales of hand sanitizer and hemp-derived delta-8-THC will allow the Company to continue to pay all of its operating expenses. There is a significant risk that, unless additional capital is obtained, the Company’s growth prospects and initiatives could be materially adversely impacted.

 

Material Damage to Lifted's Business Resulting From the Ongoing COVID-19 Pandemic:  

 

As AQSP stated in its annual report on Form 10-K filed with the SEC on March 30, 2020, the COVID-19 pandemic and its ramifications, including Illinois Governor Pritzker's Executive Order in response to the pandemic, have materially damaged Lifted's business, among other things by disrupting Lifted's access to its employees, suppliers, packaging, distributors and customers. That is why Lifted applied for and received funding under the federal Economic Injury Disaster Loan program and the federal Paycheck Protection Program (collectively the "Federal Financial Assistance").


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Expectations to Continue as a Going Concern:  

 

Notwithstanding the material damage to our business described above, the management of Lifted currently expects Lifted to continue as a going concern during the 12 months following the date of this report, for the following reasons:

·The Federal Financial Assistance has significantly increased Lifted's liquidity. As of August 12, 2020, Lifted had cash on hand of approximately $195,995 including the Federal Financial Assistance. In addition, we observe that as of August 12, 2020, Lifted's parent company AQSP had cash on hand of approximately $112,730. This total consolidated cash on hand of $308,725 is significant. 

·As of today, Lifted’s current assets significantly outweigh Lifted's current liabilities. However, we do owe a total of $350,000 in management bonuses to GJacobs and WJacobs, and we do not have the money to pay these bonuses. GJacobs and WJacobs are entitled to these bonuses and could demand payment of them.  

·When Lifted's core business of manufacturing, packaging, selling and distributing cannabinoid-infused products was materially damaged by the COVID-19 pandemic and its ramifications, Lifted diverted a significant portion of its available human and financial capital toward a new line of business manufacturing, selling, brokering and distributing hand sanitizer. To date, the demand for Lifted’s hand sanitizer has been significant, and in April 2020 Lifted acquired a new machine for filling and labeling a higher number of bottles of sanitizer per hour. With this new machine, and with the assistance of its third party distributors including certain distributors with access to large retail chains, Lifted is hoping to obtain significantly higher sales of sanitizer products. However, we expect that the national supply of hand sanitizer will gradually increase, and the price of and Lifted's profits on hand sanitizer products will gradually decrease, over time.  

·While Lifted's access to its employees, suppliers and packaging has been materially disrupted by the COVID-19 pandemic and its ramifications, the demand by distributors for the quantities of Lifted’s new hemp flower brand Urb that Lifted has able to manufacture and package to date has been significant. Some outsourcing by Lifted has helped increase the production of Urb products during the COVID-19 pandemic, and in April Lifted bough a rolling machine and grinder to improve the efficiency of production of Urb products in-house. And very recently, significantly more Urb packaging has arrived at Lifted, giving Lifted hopes that we will have more Urb product in inventory and ready for delivery whenever nationwide distributors are allowed to re-open as the COVID-19 pandemic hopefully subsides. However, we expect that other hemp companies will copy the Urb brand's innovative and colorful packaging and thus create more competition against Lifted's Urb products, over time. 

·Lifted’s operations may need to be relocated, either due to local zoning or other municipal objections to Lifted’s business, or due to Lifted’s need for space that is air conditioned and sufficiently large to accommodate expansion. Lifted is currently exploring alternative locations in the event that relocation is necessary or desirable. There can be no guarantee or assurance whatsoever that the Company will be able to find an alternative location at an acceptable price that will allow it to conduct its business. 

·Lifted has commenced selling hemp-derived delta-8-THC nano drops and cartridges and gummies. 

·Lifted has commenced selling nano CBD water enhancer packets.  

·When the COVID-19 pandemic hopefully subsides, Lifted hopes to launch a cannabinoid-infused facial skin care line with proprietary formulations developed by an experienced chemist. However, Lifted has no guarantees that this new skin care line will be successful in the marketplace. 

·Lifted is taking proactive steps to attempt to gain brand awareness and drive more direct-to-consumer sales online. Lifted has used public relations firms to assist with Lifted’s public relations efforts. Lifted has also hired a firm specializing in SEO to assist with Lifted’s organic search engine rankings. However, Lifted has also experienced outages of its website, which may be due hacking and/or sabotage, which has hurt Lifted’s online sales and presumably has also negatively impacted Lifted’s perception with consumers.     

 

Lifted plans to take actions to continue as a going concern, if necessary:

 

If the COVID-19 pandemic and its ramifications, or if other events and circumstances adverse to Lifted's business, challenge Lifted’s ability to continue as a going concern within one year after the date that AQSP’s consolidated financial statements are issued, then we would plan to sustain Lifted as a going concern by taking one or more of the following actions:

·causing Lifted’s parent company AQSP to complete private placements of AQSP's common stock and/or preferred stock 

·borrowing from banks and/or private investors 

·acquiring and/or developing profitable businesses that will create positive income from operations 

·causing Lifted’s parent company AQSP to accrue rather than pay dividends on AQSP's outstanding preferred stock 

We believe that by taking some combination of these actions, Lifted should be able to be provided with sufficient capital, future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees that Lifted will be successful in consummating such actions on acceptable terms, if at all, and that is why in AQSP's filings with the SEC we are careful to include a "going concern" risk.

 

ITEM 1. STATEMENTS

 

Prior to the acquisition of Lifted on February 24, 2020, Acquired Sales Corp. had no sources of revenue, and Acquired Sales Corp. had a history of recurring losses, which has resulted in an accumulated deficit of $17,678,926 as of June 30,


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2020. Acquired Sales Corp. has Preferred Stock outstanding that is currently accruing dividends at the rate of 3% per year, and the Company is obligated to pay an aggregate of $350,000 in management bonuses that it does not currently have sufficient to pay. These matters raise substantial doubt about our ability to continue as a going concern.

 

This Management’s Discussion and Analysis (“MD&A”) section discusses our results of operations, liquidity and financial condition and certain factors that may affect our future results. You should read this MD&A in conjunction with our financial statements and accompanying notes included elsewhere in this report.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains statements that are considered forward-looking statements. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this annual report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2020. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Certain information included herein contains statements that may be considered forward-looking statements, such as statements relating to our anticipated revenues and operating results, future performance and operations, plans for future expansion, capital spending, sources of liquidity and financing sources. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ from those expressed in any forward-looking statements made herein. These risks and uncertainties include the “Risk Factors” included herein and in our annual report on Form 10-K filed with the SEC on March 30, 2020, that can be read at www.sec.gov.

 

Overview

 

Please refer to “NOTE 1 – DESCRIPTION OF THE BUSINESS OF ACQUIRED SALES CORP.” for information.

 

Liquidity and Capital Resources

 

The following table summarizes our current assets, current liabilities and working capital as of June 30, 2020 and December 31, 2019, as well as cash flows for the six months ended June 30, 2020 and 2019.

 

 

June 30, 2020

December 31, 2019

Current Assets

$ 1,531,004   

$ 4,594,512   

Current Liabilities

834,261   

189,243   

Working Capital

696,743   

4,405,269   


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For the Six Months Ended

 

June 30,

 

2020

 

2019

Net Cash Used in Operating Activities

$ (740,074)  

 

$ (346,483)  

Net Cash Used in Investing Activities

$ (3,085,225)  

 

$ (1,896,200)  

Net Cash Provided by/(Used in) Financing Activities

$ (48,827)  

 

$ 6,583,706   

 

Comparison of June 30, 2020 to June 30, 2019

 

At June 30, 2020, we had consolidated cash and cash equivalents of $510,803. In comparison, at June 30, 2019, we had cash and cash equivalents of $4,341,023.

 

Consolidated current assets of $1,531,004 at June 30, 2020 consisted prepaid expenses for professional fees of $2,083, interest receivable of $838, note receivable from CBD Lion of $122,546, and net accounts receivable of $394,697. We believe that the consolidated current assets are adequate to fund current operations and to fulfill corporate obligations. In comparison, at June 30, 2019, total current assets were $4,343,106, which consisted of cash of $4,341,023 and prepaid expenses for professional fees of $2,083.

 

Other assets at June 30, 2020 primarily include goodwill of $22,292,767, intangible assets (less accumulated amortization) of $3,888, and our investments in Ablis, Bendistillery and Bend Spirits, which total $1,896,200. At June 30, 2019, our other assets included our investments in Ablis, Bendistillery and Bend Spirits, which totaled $1,896,200.

 

Consolidated current liabilities as of June 30, 2020 totaled $834,261. At June 30, 2020, primarily driving the current liabilities was $350,000 in accrued management bonuses payable to GJacobs and WJacobs, dividends payable of $45,521 to the Series A Convertible Preferred Stock holders, dividends payable of $13,221 payable to the Series B Convertible Preferred Stock holders, interest of $26,301 payable to Nicholas S. Warrender, and deferred revenue of $79,380.

 

In comparison, current liabilities at June 30, 2019 of $86,099 consisted of dividends payable of $44,977 to our Series A Preferred Stock shareholders, trade accounts payable of $22,052, and accounts payable to related parties of $19,070. Accounts payable to related parties consisted of expense reimbursements and consulting fees, and trade accounts payable consisted of liabilities for professional fees.

 

Comparison of the three and six months ended June 30, 2020 to June 30, 2019

 

During the three and six months ended June 30, 2020, Lifted recognized net sales of $1,267,942 and $1,638,367, respectively. During the six months ended June 30, 2020, AQSP recognized a total of $1,393,648 in stock compensation expense. Of the total, $733,499 came from the issuance of warrants to GJacobs. The Company also recognized $660,149 in stock compensation expense related to the issuance of warrants to WJacobs. These warrants were issued to GJacobs and WJacobs pursuant to the June 19, 2019 Compensation Agreement, which authorized the issuance of certain warrants to GJacobs and WJacobs upon the execution of employment agreements, which were signed on February 24, 2020. Also during the three months ended March 31, 2020, AQSP recognized a total of $350,000 in management bonus expense. Pursuant to GJacobs’ and WJacobs’ employment agreements, GJacobs and WJacobs were to be paid $250,000 and $100,000, respectively, upon the closing of AQSP’s acquisition of Lifted. These management bonuses are accrued for on the balance sheet as of March 31, 2020, and still today, AQSP has not yet paid these bonuses. These bonuses are payable upon demand. Also, Lifted applied for and received a $10,000 loan advance under the EIDL (“EIDL Advance”) on April 20, 2020. Lifted recognized a $10,000 gain on the forgiveness of this EIDL Advance on April 21, 2020. During the three months ended June 30, 2020, Lifted was refunded $34,429 of merchant account fees, and the Illinois Department of Revenue refunded Lifted $43,817 of sales tax.

 

During the three months ended June 30, 2020, approximately 49% of sales were generated from the sale of e-liquid and disposable e-cigarettes, 47% of sales were generated from the sale of hand sanitizer, and 4% of sales were generated from the sale of CBD. During the period February 24, 2020 (date of the Merger) through June 30, 2020, approximately 53% of sales were generated from the sale of e-liquid and disposable e-cigarettes, 37% of sales were generated from the sale of hand sanitizer, and 10% of sales were generated from the sale of CBD.

 

In comparison, during the three and six months ended June 30, 2019, we did not recognize any sales. During the three and six months ended June 30, 2019, we incurred selling, general and administrative expenses of $44,749 and $71,221, respectively. Selling, general and administrative expenses primarily consisted of professional fees and independent contractor fees. During the quarter ended June 30, 2019, we recognized stock compensation expense of $834,186, primarily related to the value of warrants to purchase unregistered shares of common stock issued to brokers for the capital raised for the Company by such brokers in the Company’s


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private placement of Series A Preferred Stock. Using the Black-Scholes model, these warrants had a value of $793,478. Also contributing to the interest expense recognized during the second quarter of 2019 was warrants to purchase $40,708 worth of unregistered shares of common stock, which the Company issued to two finders in regard to the purchase of 4.99% of the stock of Ablis. During the six months ended June 30, 2019, we recognized interest expense of $27,998; this related to the issuance of financing warrants and the related interest.

 

During the six months ended June 30, 2020, net cash of $740,074 was used, primarily for payroll and the purchase of inventory. During the same period, $3,085,225 net cash was used in investing activities, the majority of which was cash paid as part of the Lifted acquisition, and remainder used to purchase fixed assets. During the six months ended June 30, 2020, $48,827 net cash was used in financing activities, which consisted of $149,623 of proceeds from the PPP Loan offset by $198,450 in payments of dividends to holders of the Series A Convertible Preferred Stock. In comparison, during the six months ended June 30, 2019, we used cash of $346,483, primarily to pay accrued independent contractor fees and to pay professional fees. Also, during the six months ended June 30, 2019, $1,896,200 was used in investing activities; this cash was invested in Ablis, Bendistillery and Bend Spirits. Lastly, during the six months ended June 30, 2019, $6,583,706 was provided by financing activities; this cash was primarily provided by the issuance of Series A Preferred Stock, and was primarily offset by the repayment of borrowings under notes payable to related parties.

 

During the six months ended June 30, 2020, cash decreased by $3,874,126, and we had $510,803 in unrestricted cash at June 30, 2020. In comparison, during the six months ended June 30, 2019, cash increased by $4,341,023, and we had $4,341,023 in unrestricted cash at June 30, 2019.

 

The Company currently has one revenue-generating subsidiary, Lifted Made. If and to the extent that the revenue generated by Lifted Made is not adequate to pay the Company’s operating expenses, the dividends accruing on its preferred stock, and the interest payable to Nicholas S. Warrender, then Management plans to sustain the Company as a going concern by taking the following actions: (1) acquiring and/or developing additional profitable businesses that will create positive income from operations; and/or (2) completing private placements of the Company’s common stock and/or preferred stock. Management believes that by taking these actions, the Company will be provided with sufficient future operations and cash flow to continue as a going concern. However, there can be no assurances or guarantees whatsoever that the Company will be successful in consummating such actions on acceptable terms, if at all. Moreover, any such actions can be expected to result in substantial dilution to the existing shareholders of the Company.

 

Our investments in Ablis, Bendistillery and Bend Spirits made us a minority owner of these companies. As a minority owner, we will not be able to recognize any portion of Ablis’, Bendistillery’s or Bend Spirits’ revenues or earnings in our financial statements. We may, at some point, receive commissions for helping sell Ablis' and Bendistillery's products online or offline. Our investments in Ablis, Bendistillery and Bend Spirits will be tested for potential impairment of value on a quarterly basis.

 

Critical Accounting Policies

 

Critical accounting policies are discussed in “NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES.”

 

CBD Lion LLC

 

Please refer to Note 5 – Notes Receivable.

 

The William Noyes Webster Foundation, Inc.

 

Please refer to Note 5 – Notes Receivable.

 

Acquisition of Real Estate in Rhode Island

 

As discussed in our prior public filings, we have attempted to acquire one or more of the Mesolella/Jacobs Properties. The Mesolella/Jacobs Properties are parcels of real estate in Rhode Island that are owned by entities affiliated with Vincent J. Mesolella and his son Derek V. Mesolella, formerly an independent contractor to AQSP. One of the Mesolella/Jacobs Properties was also partly owned by an affiliate of our Chief Executive Officer, Gerard M. Jacobs.

 

Discussions among Messrs. Mesolella and Jacobs and our independent directors have made it highly likely that we will never purchase any of the Mesolella/Jacobs Properties.

 

Simultaneous with Vincent J. Mesolella’s agreement to negotiate in good faith regarding the possibility of us acquiring the Mesolella/Jacobs Properties, in November 2014, the officers and directors of the Company were awarded the right to purchase, directly or using a designee, for an aggregate price of $2 per director: (a) warrants to purchase an aggregate of 1.35 million shares of common stock of the Company at an exercise price of $0.01 per share; and (b) warrants to purchase an aggregate of 1.35 million


40



shares of common stock of the Company at an exercise price of $1.85 per share, 100,000 of which warrants are vested, and 1.25 million of which warrants are subject to the condition that the Company shall have acquired at least one of the Mesolella/Jacobs Properties.   

 

Other Matters

 

We may be subject to other legal proceedings, claims, and litigation arising in the ordinary course of business in addition to the matters discussed above in “NOTE 12 – LEGAL PROCEEDINGS”. We intend to defend vigorously against any such claims. Although the outcome of these other matters is currently not determinable, our management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on its financial position, results of operations, or cash flows.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Based on that evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2020, our disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules, regulations and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

As indicated in our Form 10-K for the year ended December 31, 2019, management concluded that our internal control over financial reporting was not effective. Management’s assessment of internal controls over financial reporting has not changed at June 30, 2020. There existed a lack of segregation of duties in regard to the Company’s financial reporting, procedures for depositing of funds, procedures for cash disbursements, procedures for checkbook entries, period close procedures, and procedures for financial statement preparation that result in material weaknesses in internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting

 

Our chief executive officer and chief financial officer have concluded that there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Lifted currently is involved in three pending lawsuits, two as the plaintiff and one as the defendant:

(d)Warrender Enterprise, Inc. d/b/a Lifted Liquids, a Wisconsin corporation, Plaintiff, v. Merkabah Labs, LLC, a Colorado limited liability company; Merkabah Technologies, LLC, a Colorado limited liability company; Ryan Puddy, an individual; and Ralph L. Taylor III, an individual, Defendants (United States District Court for the District of Colorado; Civil Action No. 1:20-cv-00155-SKC) In January 2020, Lifted filed a lawsuit against Merkabah Labs, LLC, Merkabah Technologies, LLC, Ryan Puddy and former Lifted representative Ralph L. Taylor III in connection with alleged breach of contract and intentional misappropriation, inducement, and illegal transfer and use of Lifted's confidential business, proprietary, and trade secret information by Merkabah Labs, LLC and Ralph L. Taylor III. Any unfavorable result in the lawsuit could have a material adverse effect on Lifted and the Company, and upon the price of the Company's common stock. In addition, Lifted is incurring, and is expected to continue to incur, substantial time, effort and legal fees associated with this lawsuit. 


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(e)Martha, Edgar v. Lifted Liquids – Edgar Martha, who worked as an independent contractor in Lifted’s production facility, has sued Lifted in regard to an alleged chemical burn. Mr. Martha has expressed to Lifted’s attorney that Mr. Martha is inclined to settle the case for $5,000. However, there can be no assurance or guarantee that the case can be settled for $5,000, as the medical bills in the case are significant and Mr. Martha’s medical insurance carrier has refused coverage. 

(f)Lifted Liquids, Inc., Plaintiff, v. Luxvoni LLC d/b/a Luxvoni Marketing Solutions; Does I through X, inclusive; and Roe Business Entities I through X, inclusive, Defendants (United States District Court for Clark County, Nevada; Civil Case No. A-20-817416-C) On July 1, 2020, Lifted filed a lawsuit against Luxvoni LLC d/b/a Luxvoni Marketing Solutions (“Luxvoni”) in regard to Luxvoni’s money back guarantee of a $25,000 upfront fee paid by Lifted to Luxvoni for digital marketing services which were never provided to Lifted. 

 

During June 2020, Lifted entered into settlement agreements that were mutually acceptable to the parties which have resolved the following two lawsuits:

(3)Mile High Labs, Inc., Plaintiff, v. Warrender Enterprise, Inc. d/b/a Lifted Liquids, Defendant (United States District Court for the District of Colorado; Civil Case No. 1:19-cv-02495-NYW); and 

(4)Accelerated Analytical, Inc., et al. v. Lifted Liquids, Inc. d/b/a Lifted Made, et al., Case No. 3:20-cv-442-wmc (United States District Court for the Western District of Wisconsin) 

 

Item 1A. Risk Factors.

 

Not required.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Unregistered sales of equity securities were disclosed in Item 3.02 of the current report filed on May 10, 2019, in  the Company’s quarterly reports on Form 10-Q for the periods ending June 30, 2019 and September 30, 2019 and in the Company’s annual report on Form 10-K for the period ending December 31, 2019.

 

In addition, we issued common stock, committed to issue restricted common stock, and warrants all in connection with the Merger.

 

On April 2, 2020, 166,888 shares of common stock were cancelled.

 

Item 3. Defaults Upon Senior Securities.

 

None; not applicable.

 

Item 4. Mine Safety Disclosures.

 

None; not applicable.

 

Item 5. Other Information.

 

Item 6. Exhibits.

 

The following Exhibits have been previously filed in the below referenced filings or have been attached hereto, and in any case, as is stated on the cover of this Report, all of the below Exhibits are incorporated herein by reference.

 

 

Form 8-K

July 16, 2014

10.30

Promissory Note; William Noyes Webster Foundation, Inc.

10.31

Security Agreement relating to Promissory Note with the William Noyes Webster Foundation, Inc.


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Form 8-KMarch 4, 2019 

10.35Stock Purchase Agreement (the “SPA”) with Ablis LLC (“Ablis”), Bendistillery Inc. d/b/a Crater Lake Spirits (“Bendistillery”), Bend Spirits, Inc. (“Bend Spirits”), Bendis Homes Pinehurst, LLC, James A. Bendis, Alan T. Dietrich, Gerard M. Jacobs and William C. “Jake” Jacobs 

4.3Registration Rights Agreement 

4.4Certificate of Designation of the Relative Rights and Preferences of the Series A Convertible Preferred Stock of Acquired Sales Corp. 

99.1Press Release Dated March 4, 2019 

 

Form 10-KMarch 12, 2019 

10.35.2James S. Jacobs Right to Purchase Warrant Agreement  

10.37Security Agreement  

10.38Demand Promissory Note Payable to Joshua A. Bloom dated July 16, 2018 

10.39Common Stock Purchase Warrants – Joshua A. Bloom – dated July 16, 2018 

10.40Demand Promissory Note Payable to Gerard M. Jacobs dated July 18, 2018 

10.41Common Stock Purchase Warrants – Gerard M. Jacobs – dated July 18, 2018 

10.42 Common Stock Purchase Warrants – Gerard M. Jacobs – dated November 8, 2018 

10.43Common Stock Purchase Warrants – Joshua A. Bloom – dated November 12, 2018 

10.44Common Stock Purchase Warrants – Gerard M. Jacobs – dated January 7, 2019 

10.45Common Stock Purchase Warrants – Gerard M. Jacobs – dated January 21, 2019 

10.46Common Stock Purchase Warrants – Gerard M. Jacobs – dated February 6, 2019 

 

Form 8-KMay 1, 2019 

10.49Stock Sale and Purchase Agreement among Ablis Holding Company, Ablis, Inc., James A. Bendis, Acquired Sales Corp., Gerard M. Jacobs and William C. “Jake” Jacobs  

10.50Stock Purchase Agreement among Bendistillery Inc., Bend Spirits, Inc., Bendis Homes Pinehurst, LLC, James A. Bendis, Alan T. Dietrich, Acquired Sales Corp., Gerard M. Jacobs and William C. “Jake” Jacobs  

 

Form 8-KMay 23, 2019  

10.52Letter of Intent between Acquired Sales Corp., Gerard M. Jacobs, William C. “Jake” Jacobs and Warrender Enterprise Inc. d/b/a Lifted Liquids and its owner  

 

Form 8-KJune 26, 2019  

10.53Compensation Agreement between Acquired Sales Corp., Gerard M. Jacobs and William C. "Jake" Jacobs dated as of June 19, 2019 

 

Form 8-KAugust 20, 2019 

10.54Agreement and Plan of Merger – CBD Lion LLC 

10.55$300,000 Promissory Note to CBD Lion LLC 

 

Form 8-KJanuary 8, 2020 

10.56Merger Agreement between Acquired Sales Corp., Gerard M. Jacobs, William C. “Jake” Jacobs and Warrender Enterprise Inc. d/b/a Lifted Liquids and its owners and exhibits A through D (Executive A: Executive Employment Agreement; Exhibit B: Stockholders Agreement; Exhibit C: Registration Rights Agreement; and Exhibit D: Promissory Note) 

 

Form 10-KMarch 30, 2020 

 

 

Form 8-K/AMay 8, 2020 

23.1Consent of Fruci & Associates II, PLLC  

99.1Financial statements: Balance sheets of Warrender Enterprise, Inc. of December 31, 2019 and December 31,  

2018, and the related statements of operations, shareholder’s equity (deficit), and cash flows for the two-year period ended December 31, 2019 

 

Form 10-QMay 20, 2020 

10.57 U.S. Small Business Administration Note – Paycheck Protection Program Loan 

 


43



Form S-1/A

July 6, 2020

3.1

Articles of Incorporation dated December 12, 1985

3.2

Amended Articles of Incorporation Dated July 1992

3.3

Amended Articles of Incorporation Dated November 1996

3.4

Amended Articles of Incorporation Dated June 1999

3.5

Amended Articles of Incorporation Dated January 25, 2006

3.6

Amended Bylaws

5.1

Opinion of David S. Hunt, P.C.

10.53

Compensation Agreement between Acquired Sales Corp., Gerard M. Jacobs and William C. "Jake" Jacobs dated as of June 19, 2019

10.56

Merger Agreement between Acquired Sales Corp., Gerard M. Jacobs, William C. “Jake” Jacobs and Warrender Enterprise Inc. d/b/a Lifted Liquids and its owners and exhibits A through D (Executive A: Executive Employment Agreement; Exhibit B: Stockholders Agreement; Exhibit C: Registration Rights Agreement; and Exhibit D: Promissory Note)

23.1

Consent of Fruci & Associates II, PLLC -  Independent Registered Public Accounting Firm regarding the financial statements of Acquired Sales Corp.

23.2

Consent of Fruci & Associates II, PLLC -  Independent Registered Public Accounting Firm regarding the financial statements of Warrender Enterprise, Inc.

23.3

Consent David S. Hunt, P.C. (included in Exhibit 5.1)

24.1

Power of Attorney (included on signature page)

 

This 10-Q

31.1

 

31.2

Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by Gerard M. Jacobs

Certification of principal accounting officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 executed by William C. Jacobs

32.1

 

32.2

Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by Gerard M. Jacobs

Certification of principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 executed by William C. Jacobs

 

101.INS

101.PRE

101.LAB

101.DEF

101.CAL

101.SCH

XBRL Instance Document*

XBRL Taxonomy Extension Presentation Linkbase*

XBRL Taxonomy Extension Label Linkbase*

XBRL Taxonomy Extension Definition Linkbase*

XBRL Taxonomy Extension Calculation Linkbase*

XBRL Taxonomy Extension Schema*

 

*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, or deemed “furnished” and not “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under these sections. 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: August 19, 2020

 

 

 

ACQUIRED SALES CORP.

 

 

 

 

By:  

/s/ Gerard M. Jacobs

 

Gerard M. Jacobs

 

Chief Executive Officer


44